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= 10-1.00Q Supply: P= 1.00Q-4, 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 7 thousand units and the equilibrium price is $ 3. (Enter your responses rounded to two decimal places.) Suppose the government imposes a tax of $2 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 per unit will the seller receive? The new equilibrium quantity will be thousand units. (Enter your response rounded to two decimal places.)

Explanation / Answer

1) equilibrium = d= s; 100-1q= 1q-4; 100+ 4= 2q; 104 = 2q; q= 104/2 = 52 is equilibrium quantity and equilibrium price is; put the value of q in any equation say p= 100-1q; p= 100-1* 52; hence equilibrium price is 48 and 52 is the equilibrium quantity.

2)equilibrium quantity is 7000*3*2 = 42000

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