Microeconomics 2nd Edition by Douglas Bernheim

Exercise 1

The demand function for a product is Q d = 100 B d P. Suppose that there is a tax of t dollars per unit that producers must pay and that the supply function for the product when the tax is t and the price is P is Q s = B s ( P t ) 5. What is the equilibrium price as a function of the tax t Define the "pass-through rate" of a small increase in the tax as the derivative of the market price consumers pay with respect to the tax: dP / dt. What is the pass-through rate of a small tax increase in this market How does it depend on B d and B s