Question

The supply and demand curves for gasoline have been determined:
Qd = 150 - p
Qs = 2p

A) Calculate the economic benefit, the price counts efficiency and the ratio price counts and Calculate the private income of the 20 units produced. What is the market price?
B) Now suppose that the consumption tax of $ 6 per unit is still in force. A
project that will use 10 gasoline units as input. Graphically illustrate this
cost.

Answer 1

A)

* Economic profit------- There is zero Economic profit in this case as Equilibrium price and quantity ,both are determined as per the market forces of demand and supply.

* price counts efficiency --- Thr Equilibrium price determined by Qd and Qs id is $50. It is efficient price because, at this price drmand and suppply both are equal.

* Equilibrium Quantity is determined at 100 units

.

* Private income of 20 units produced--------

At producing 20 units----

Substituting the value of Q in supply equation--:Qs=2p

20=2p

P=10$

Now again , substituting value of Q in demand equation----

Qd=150---p

20= 150--p

P=$ 130

So, private invome = totL pvt Revenue - toal privae cost

20(130--10)=$2400

Private income =$2400.

Market price =$ 50

#B)

Effect of tax on Consumption ($6 per unit)-----

When a tax on Consumption @$6 p/ u is imposed,the Supply curve shifts leftward, forming new equlibrium Point E'.

Ps=Pb--6

Supply equation-----

Qs=2(p-6)

= 2p-12

Not equating Qd&Qs----

150-p=2p-12

P=54$

Putting value of p in any equations-----

Qd=Qs= 96 units

The new equlibrium Quantity is 96 units of gasoline and Equilibrium price is $54.

* About a project using 10 units of gasoline as input-----

-At demand for 10 units of gasoline ,the price comes to $140(see graph)

Putting vale of Q=10 in demand equation----

150-p=10

P=$ 140