The demand and supply equations for a product are:Q"= 300 – 6P and Q' = -40 + 6P.Determine the market equilibrium and draw graphs.Suppose that the government decides to impose a flat taxof 10% on each unit sold. Show that the price thatconsumers pay would be the same if the governmentimposed a tax of Rs. 1.70 per unit sold. Draw graphs andexplain.• Also calculate the total revenue earned by sellers beforeand after the tax, the tax revenue raised by thegovernment, changes in consumer and producers surplusand dead weight loss.

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The demand and supply equations for a product are: Q = 300 – 6P and Q' = -40 + 6P. • Determine the market equilibrium and draw graphs.

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

Chapter17: Taxation And Resource Allocation

Section: Chapter Questions

Problem 4TY

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Question

The demand and supply equations for a product are:
Q"= 300 – 6P and Q' = -40 + 6P.
Determine the market equilibrium and draw graphs.
Suppose that the government decides to impose a flat tax
of 10% on each unit sold. Show that the price that
consumers pay would be the same if the government
imposed a tax of Rs. 1.70 per unit sold. Draw graphs and
explain.
• Also calculate the total revenue earned by sellers before
and after the tax, the tax revenue raised by the
government, changes in consumer and producers surplus
and dead weight loss.

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