Q5. Suppose that a market is described by the following supply and demand equation s: Qs = 2P Q = 300 - P 1) Solve for the equilibrium price and the equilibrium quantity. 2) Suppose that a tax of T=30$ is placed on buyers, so the new demand equation is Q = 300 (P + I) = 270 - P Solve for the new equilibrium. What happens to the price received by sellers, the pri ce paid by buyers, and the quantity sold? 3) Calculate the tax revenue (T x Q). 4) The deadweight loss of a tax is the area of the triangle between the supply and d emand curves. Recalling that the area of a triangle is 1/2 x base x height, solve for deadweight loss. (Hint: Looking sideways, the base of the deadweight loss triangle is T, and the height is the difference between the quantity sold with the tax and the qu antity sold without the tax.)

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Q5. Suppose that a market is described by the following supply and demand equation
S:
Q = 2P
QP = 300 - P
1) Solve for the equilibrium price and the equilibrium quantity.
2) Suppose that a tax of T=30$ is placed on buyers, so the new demand equation is
= 300 - (P + I) = 270 - P
Solve for the new equilibrium. What happens to the price received by sellers, the pri
ce paid by buyers, and the quantity sold?
3) Calculate the tax revenue (7 x Q).
4) The deadweight loss of a tax is the area of the triangle between the supply and d
emand curves. Recalling that the area of a triangle is 1/2 x base x height, solve for
deadweight loss. (Hint: Looking sideways, the base of the deadweight loss triangle is
T, and the height is the difference between the quantity sold with the tax and the qu
antity sold without the tax.)
5) (optional question) The government now levies a tax of T=$200 per unit on this g
ood. Is this a good policy? Why or why not? Can you propose a better policy?
Transcribed Image Text:Q5. Suppose that a market is described by the following supply and demand equation S: Q = 2P QP = 300 - P 1) Solve for the equilibrium price and the equilibrium quantity. 2) Suppose that a tax of T=30$ is placed on buyers, so the new demand equation is = 300 - (P + I) = 270 - P Solve for the new equilibrium. What happens to the price received by sellers, the pri ce paid by buyers, and the quantity sold? 3) Calculate the tax revenue (7 x Q). 4) The deadweight loss of a tax is the area of the triangle between the supply and d emand curves. Recalling that the area of a triangle is 1/2 x base x height, solve for deadweight loss. (Hint: Looking sideways, the base of the deadweight loss triangle is T, and the height is the difference between the quantity sold with the tax and the qu antity sold without the tax.) 5) (optional question) The government now levies a tax of T=$200 per unit on this g ood. Is this a good policy? Why or why not? Can you propose a better policy?
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