Suppose the quantity demanded of avocados is given by Qd = 104 -40P + 20pt +...

Suppose the quantity demanded of avocados is given by Qd = 104 -40P + 20pt + 0.01Y , where P is the price of avocados, pt is the price of tomatoes, and Y is the average income. The supplied quantity of avocados is Qs = 58 + 15P -20pf , where pf is the price of fertilizer. Suppose pt = $0.8, Y = $4, 000, and pf= $0.40.

(a) What are the equilibrium price and quantity of avocados? Illustrate the demand

and supply functions of avocados on a clearly marked graph.

(b) Suppose the government charges a $1.10 specific tax per avocado, to be paid by

consumers. What will be the after-tax market price of avocados (that is, the

producer price)? What is the incidence of this taxon consumers? Illustrate

the effects of the tax on a graph

much revenue does the government collect from this tax? What is the welfare

effect on society as a whole?

Please answer the third question in detail

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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