QUESTION 6 QD-187- 2P and Qs--36365P before a tax of $2 is added to each unit of
ID: 3216431 • Letter: Q
Question
QUESTION 6 QD-187- 2P and Qs--36365P before a tax of $2 is added to each unit of the good. What is the consumer surplus after taxes? (Hint: Because suppliers make their decision based on how much they receive after tax, the new supply function is: QS =-363 + 65(.2) } ROUND TO THE NEAREST CENT QUESTION 7 QD-63-6P and Qs-371 72P before a tax of $2 is added to each unit of the good. What is the dead weight loss after taxes? (Hint: Because suppliers make their decision based on how much they receive after tax, the new supply function is: QS =-371 + 72(P-2) } ROUND TO THE NEAREST CENTExplanation / Answer
SOLUTION:(6)
Equating Qd = Qs
187 - 2P = -363+65P
67P = 550
P = 8.2
Q = 187-2P=187-2*8.2=170.58
Assuming the excise tax is imposed on sellers:
The tax will increase cost for suppliers & supply curve will shift upward by amount of the tax.
Qs =-363+65P
So, P = 0.0154Qs + 5.58
New P (after tax) = 0.0154Qs + 7.58
Or, Qs = -492+65P
Equating with Qd (unchanged):
187 - 2P = -492+65P
67P = 679
P = 10.13
Q = 187 - (2x 10.13) = 166.73
So price has increased & quantity has decreased.
New consumper surplus = (1/2) x (100 - 10.13) x 166.73 = 7492.01
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