Suppose the market for widgets can be described by the following equations: Dema

Question

Suppose the market for widgets can be described by the following equations:

Demand: P = 14 – 1.00Q
Supply: P = 1.00Q – 6,

Where P is the price in dollars per unit and Q is the quantity in thousands of units. What is the equilibrium price and quantity? The equilibrium quantity is ______ units and the equilibrium price is $______.

Suppose the government imposes a tax of $1 dollar per unit to reduce widget consumption and raise government revenues. What will be the new equilibrium quantity? What price will the buyer pay? What amount will the seller receive?

The new equilibrium quantity will be __________.
The price paid by buyers will be $__________.
The amount kept by sellers will be $__________.

Explanation / Answer

Demand: P = 14 - Q
Supply: P = Q - 6

We know that at equilibrium, Demand = Supply.

So comparing the demand and supply equations, we have:
14 - Q = Q - 6
or, Q = 10 thousand units. (Equilibrium quantity)

Inserting the quantity in the demand or supply equation, we have:
P = 14 - Q
or, P = 14 - 10
or, P = $4. (Equilibrium price)

(Alternately, inserting quantity in supply equation will give the same equilibrium price.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.