a. We are analyzing the market for a particular good and are given the following equations...

a. We are analyzing the market for a particular good and are given the following equations for demand and supply: P=10-Q and P=Q-4. First, determine the equilibrium price and quantity in this market.

b. Suppose the government wants to create a disincentive for the consumption of this good by placing a tax on the good in the amount of $1. How much less will be sold? How much will the buyer pay and how much will the seller get?

c. How much different would the outcomes be if the tax was instead a subsidy (you can assume a subsidy in the same amount -- $1)? When would a subsidy be used?

Expert Solution

Rahul Sunny answered 6 months ago

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