Question
Let's return to our market for this new truck. Suppose the inverse demand and inverse supply curve for trucks were given by the following two
Let's return to our market for this new truck. Suppose the inverse demand and inverse supply curve for trucks were given by the following two equations respectively: P = 45, 000 4Q P = 10, 000 + 3Q a) (8 marks) Determine the free market equilibrium price for this truck in this market, and the amount of trucks that are sold. Calculate the consumer surplus and producer surplus. b) (12 marks) Suppose the government imposed a tax of = $7, 000 on the price of a new truck. Calculate the new equilibrium in this market. This includes finding The new equilibrium quantity sold. The price paid by consumers. The price received by firms. The consumer surplus. The producer surplus. The amount of tax collected by the government. The deadweight loss. c) (5 marks) Discuss what the deadweight loss represents and why it exists. d) (5 marks) In this scenario, who pays a larger share of the tax and why? A full answer will involve a discussion of elasticity.
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