In a competitive market the equilibrium price, P, and quantity, Q, are found by setting QS = QD = Q in the supply and demand equations: P=aQS +b(a>0,b>0)P=−cQD +d(c>0,d>0)A) If the government levies an excise tax, t, per unit, show that:Q=d-b-t/a+cB)Deduce that the government’s tax revenue, T = tQ, is maximised by takingt=d-b/2 9. In a competitive market the equilibrium price, P, and quantity, Q, are found by settingOs = Qp = Q in the supply and demand equationsP = aQs + b (a>0, b > 0)P = -cQp + d (c > 0, d > 0)If the government levies an excise tax, t, per unit, show thatd – b – ta + cDeduce that the government's tax revenue, T = tQ, is maximised by takingd - bt =

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Answered: In a competitive market the equilibrium…

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter5: Elasticity Of Demand And Supply

Section5.A: Appendix: Price Elasticity And Tax Incidence

Problem 2AQ

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In a competitive market the equilibrium price, P, and quantity, Q, are found by setting QS = QD = Q in the supply and demand equations:

P=aQS +b(a>0,b>0)

P=−cQD +d(c>0,d>0)

A) If the government levies an excise tax, t, per unit, show that:

Q=d-b-t/a+c

B)Deduce that the government’s tax revenue, T = tQ, is maximised by taking
t=d-b/2

9. In a competitive market the equilibrium price, P, and quantity, Q, are found by setting
Os = Qp = Q in the supply and demand equations
P = aQs + b (a>0, b > 0)
P = -cQp + d (c > 0, d > 0)
If the government levies an excise tax, t, per unit, show that
d – b – t
a + c
Deduce that the government's tax revenue, T = tQ, is maximised by taking
d - b
t =

Definition Video Formula Definition Phenomenon in which market supply and demand balance each other. Market equilibrium is the economic state in which the market demand curve intersects the market supply curve, giving us the equilibrium price and equilibrium quantity for which a commodity can be sold and purchased in an economy. When market equilibrium is achieved, it suggests that all resources have been allocated efficiently and that there is just a distribution of income and resources in the economy. Video Formula

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