Suppose the market for widgets can be described by the followingequations:

Demand:

P

=

101.00Q

Supply:

P

=

1.00Q4,

where P is the price in dollars per unit and Q is the quantity in thousands of units.

What is the equilibrium price andquantity?

The equilibrium quantity is

7

7 thousand units and the equilibrium price is $

3.00

3.00. (Enter your responses rounded to two decimal places.)

Suppose the government imposes a tax of $1 per unit to reduce widget consumption and raise government revenues. What will be the new equilibriumquantity? What price will the buyerpay? What amount per unit will the sellerreceive?

The new equilibrium quantity will be

6.50

6.50 thousand units. (Enter your response rounded to two decimal places.)

The price paid by buyers will be $

3.50

3.50. (Enter your response rounded to two decimal places.)

The amount kept by sellers will be $

2.50

2.50. (Enter your response rounded to two decimal places.)

Suppose the government has a change of heart about the importance of widgets to the happiness of the American public. The tax is removed and a subsidy of $1 per unit is granted to widget producers. What will the equilibrium quantitybe? What price will the buyerpay? What amount per unit(including thesubsidy) will the sellerreceive? What will be the total cost to thegovernment? (Enter your responses rounded to two decimal places.)

The new equilibrium quantity will be

7.50

7.50 thousand units.

The price paid by buyers will be $

2.50

2.50.

The amount received by sellers will be $

3.50

3.50.

The total cost to the government will be $

7.50

7.50 thousand.