Suppose the equation for the demand curve for some product X is: P = 8 - 0.6Q Th

Question

Suppose the equation for the demand curve for some product X is: P = 8 - 0.6Q The equation for the supply curve is: P = 2 + 0.4Q What are the equilibrium price and quantity?

Equilibrium price = $4.40

Equilibrium quantity =6 units

Now suppose an excise tax is imposed on X such that the new supply equation is: P = 4 + 0.4Q How much tax revenue will this excise tax yield the government? $8

In the diagram below, draw in the new supply curve (with the excise tax) and identify the area that corresponds to the revenue generated by the tax. Instructions: 1) Use the line tool (S+T) to draw the new supply curve for the equation P = 4 + 0.4Q. Locate the end points at Q = 0 and Q = 10. 2) Use the point tool (B) to identify the new equilibrium price and quantity. 3) Use the four-point shading tool (Revenue) to identify the area that represents tax revenue collected.

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Explanation / Answer

P = 8 - 0.6Q P = 4 + 0.4Q equate both q=4 , p = 5.6 yield = 4.4/6 - 5.6/4 (positive) please rate appreciated

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