Consider the following industry supply and demand curves: Supply: P = 567 + Q/3223 Demand: P =
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Question:
- Consider the following industry supply and demand curves:
Supply: P = 567 + Q/3223 Demand: P = 3456 - Q/2987
- What will be the equilibrium price and quantity? Suppose the government imposes a specific tax on producers of $100 per unit. Show the equations for the new supply and demand curves. What will be the new equilibrium price and quantity? How much (in %) did each of the price and quantity change compared to the original equilibrium amounts? What proportion of the tax is paid by suppliers and what proportion of the tax is paid by consumers (considering the tax paid and any change in price)? If the tax is meant to reduce environmental damage caused by the production and consumption of the product, has it been effective, why or why not?
- Redo (a) assuming the original demand curve is P = 1789 (i.e., it is horizontal).
- Redo (a) assuming the original demand curve is Q = 4,123,000 (i.e., it is vertical).
- What will be the equilibrium price and quantity (same as original result in part a)? Suppose the government imposes an ad valorem 13% tax on the sale price paid by consumers. Show the equations for the new supply and demand curves. What will be the equilibrium price and quantity? How much will consumers pay per unit including the tax? How much did the each of the price (before tax) and quantity change compared to the original equilibrium amounts? What is the total amount of tax the government collects per unit sold? What proportion of the tax is paid by suppliers and what proportion of the tax is paid by consumers (considering the tax paid and any change in before-tax price)? If the tax is meant to reduce environmental damage caused by the production and consumption of the product, has it been effective, why or why not?
- Redo (d) assuming the original demand curve is P = 1789 (i.e., it is horizontal).
- Redo (d) assuming the original demand curve is Q = 4,123,000 (i.e., it is vertical).
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