Demand: p = 80 - 5Q Supply: p = 24 + 20 a. Plot the demand and supply curves on a scale diagram. b. Compute the equilibrium price and quantity. C. Now suppose the government imposes a tax of 14 cents per litre. Show how this affects the market equilibrium. What is the new "consumer price" and what is the new "producer price"?
Demand: p = 80 - 5Q Supply: p = 24 + 20 a. Plot the demand and supply curves on a scale diagram. b. Compute the equilibrium price and quantity. C. Now suppose the government imposes a tax of 14 cents per litre. Show how this affects the market equilibrium. What is the new "consumer price" and what is the new "producer price"?
Chapter4: Markets In Action
Section: Chapter Questions
Problem 1SQP
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Transcribed Image Text:Demand: p = 80 - 500
Supply: p = 24 + 2Q°
a. Plot the demand and supply curves on a scale diagram.
b. Compute the equilibrium price and quantity.
C. Now suppose the government imposes a tax of 14 cents per litre. Show how this affects the market equilibrium. What is the new "consumer price" and what is the new
"producer price"?
d. Compute the total revenue raised by the gasoline tax. What share of this tax revenue is "paid" by consumers, and what share is "paid" by producers? (Hint: If the
consumer price were unchanged from the pre-tax equilibrium, we would say that consumers pay none of the tax.)
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