1) Suppose the supply and demand equations are as follows: MC = P = 2.5 + 2.4 Q
ID: 1110535 • Letter: 1
Question
1) Suppose the supply and demand equations are as follows:
MC = P = 2.5 + 2.4 Q
WTP = P = 8.5 - 2.3 Q
If there is a tax of 3 on demand. By how much will the equilibrium price change? If it rises, enter the change as a positive number. If it falls, enter the change as a negative number.
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Question 21 pts
Suppose the supply and demand equations are as follows:
MC = P = 1.7 + 1.1 Q
WTP = P = 8.3 - 2.3 Q
If there is a tax of 2 on supply. By how much will the equilibrium price change? If it rises, enter the change as a positive number. If it falls, enter the change as a negative number.
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Question 31 pts
Suppose the supply and demand equations are as follows:
MC = P = 1.7 + 2 Q
WTP = P = 8.5 - 2.3 Q
If there is a tax of 3. By how much will the equilibrium quantity change? If it rises, enter the change as a positive number. If it falls, enter the change as a negative number.
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Question 41 pts
Suppose the supply and demand equations are as follows:
MC = P = 1.4 + 1.8 Q
WTP = P = 9.2 - 2.4 Q
If there is a tax of 3, what is the change in how much buyer pay for the good? If it rises, enter the change as a positive number. If it falls, enter the change as a negative number.
Explanation / Answer
1
Inverse demand :
2.3Q = 8.5 – P
Q = 3.69 – 0.43 P
Before tax
2.5+2.4Q = 8.5 – 2.3Q
4.7Q = 6
Q = 1.27
P = 5.548
After tax
New demand will be
Q = 3.69 – 0.43 (P + 3)
Q = 3.69 +1.29 -0.43P
Q = 4.98 -0.43 P
Substitute Q in MC
P = 2.5 +2.4(4.98 -0.43P)
P = 14.202 – 1.032P
2.032P = 14.202
P’ = 14.202/2.032 = 6.989
Price paid by consumer 9.989
Change in price = 9.989-5.548
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