2. Consider the market for Widgets. Suppose that the equation for the supply curve is: Qs = 1,000P – 10,000, and the equation for the demand curve is: Qd = 50,000 – 2,000P. a. Calculate the equilibrium price and quantity. b. Suppose the government requires consumers to pay a tax of $3 per Widget purchased. Find the new inverse demand curve under the tax as well as the inverse supply curve. (Hint: Shift the inverse demand curve down by the amount of the tax.) c. Compute the quantity produced under the tax, the tax revenue raised, the price received by the suppliers, and the price paid by the consumers. d. Compute the change in CS and PS. Which side of the market suffered the larger actual burden?

2. Consider the market for Widgets. Suppose that the equation for the supply curve is: Qs = 1,000P – 10,000, and the equation for the demand curve is: Qd = 50,000 – 2,000P. a. Calculate the equilibrium price and quantity. b. Suppose the government requires consumers to pay a tax of $3 per Widget purchased. Find the new inverse demand curve under the tax as well as the inverse supply curve. (Hint: Shift the inverse demand curve down by the amount of the tax.) c. Compute the quantity produced under the tax, the tax revenue raised, the price received by the suppliers, and the price paid by the consumers. d. Compute the change in CS and PS. Which side of the market suffered the larger actual burden?

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter8: Application: The Costs Of Taxation

Section: Chapter Questions

Problem 10PA

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