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Suppose That Instead of a Supply-Demand Diagram, You Are Given

Question 117

Essay

Suppose that instead of a supply-demand diagram, you are given the following information:
Qs = 100 + P
Qd = 500- 4P
From this information, compute the equilibrium price (P) and quantity (Q).Now suppose that a tax (T) is placed on sellers so that
Qs = 100 + (P -T).If T = 20, solve for the new equilibrium price and quantity.(Note: P-T is the price received by sellers and P is the price paid by buyers.) Compare these answers for equilibrium price and quantity with your first answers.What does this show you?

Correct Answer:

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Before the tax, the market equilibrium p...

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