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In: Economics

The market for a product has the following inverse demand and supply functions Pd= 120 -...

The market for a product has the following inverse demand and supply functions

Pd= 120 - Qd

Ps   = 0.5Qs.

  1. Suppose the state government levies a tax of $15 on each unit sold, imposed on the consumers. Find the prices that consumers pay (Pd) and the producers receive (Ps) and the new quantity traded in the market, Q**. Show on your diagram.
  2. What is the incidence of the tax on consumers and what on producers.
  3. How much money does the state government collect as tax revenue? Calculate how much of the tax burden falls on the producers and how much on the consumers.
  4. Find the new consumer and producer surplus. If there is a deadweight loss find it

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Expert Solution

Rahul Sunny answered 2 years ago
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