Answered: Question 4 Given: QD = 160 -5P QS =…

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter6: Demand And Elasticity

Section: Chapter Questions

Problem 3TY

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solution for d ,e and f

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

Expert Solution

Step 1

Before-tax imposition,

QD = 160 -5P

QS = -11 + 4P

At equilibrium,

QD=QS

or, 160-5P=-11+4P

or, P=19

So, Q=65

Step 2

After imposition of taxes,

QD=QS

or, 160-5(P+t)=-11+4P

as the tax (t)= $3 is imposed on the buyers.

or, 160-5P-5 $\times$ 3=-11+4P

or, P=17.33

So, Q=58.35

Step 3

Thus, the producer surplus (PS) after the tax can be easily calculated.

The PS will be triangle DGF.

Area of DGF = $\frac{1}{2} \times (17.33 + 11) \times 58.35 = 826.53$

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