Question
Consider good A again. The demand for good A is given by: QD=40-1/2P The supply for good A is given by: QS=-20+1/2P a) Graph the
Consider good A again. The demand for good A is given by: QD=40-1/2P The supply for good A is given by: QS=-20+1/2P a) Graph the demand and supply curve. Label the equilibrium price and quantity. b) Calculate the consumer surplus and the producer surplus, and label them on the graph. The Senate has decided that the consumption of good A has negative externalities and should be taxed. Senator Pretentious convinces his colleagues that buyers should pay the tax"they should pay for the damage they inflict on society!" Thus, a tax of $5 per unit is imposed to be paid by buyers.
c) Copy your graph from a) and show how the tax affects the market. Label the new equilibrium quantity, the price by consumers, and the price received by suppliers. d) Calculate and label: consumer surplus, producer surplus, tax revenue, and DWL.
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