The market for a product is defined by the following demand and supply curves: Qd=26-0.1P Qs=-10+0.3P...

The market for a product is defined by the following demand and supply curves:

Qd=26-0.1P

Qs=-10+0.3P

Assume that an ad valorem tax of 50 per cent (i.e. t=0.5) is placed on the product.

(a) On the diagram you have drawn in (i), add the new supply curve reflecting the impact of the ad valorem tax.

(b) Derive mathematically the new equilibrium consumer and producer prices and quantity.

(c) Find the amount of tax revenue gained by the government

Expert Solution

Rahul Sunny answered 8 months ago

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