2. A markets demand function is given by D(p) = 40 -.5P, and the market supply...

2. A markets demand function is given by D(p) = 40 -.5P, and the market supply

function is given by S(P) = (1/3)P - 10.

a. Draw the demand and supply curves, and calculate and label the market price and quantity on the graph.

b. Calculate and label the consumer surplus and the producer surplus.

c. If the government imposes a $10 per unit tax on producers, draw the old and new demand and supply curves.

d. Calculate the new price and quantity, and the new consumer surplus and producer surplus.

e. What amount of the tax bill is paid by consumers, and what amount is paid by producers? Who pays more of the tax bill and why?

Expert Solution

Rahul Sunny answered 2 years ago

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