Question
You are in charge of a toll bridge. The inverse demand for bridge crossings Q is given by P = 2 0 3 Q ,
You are in charge of a toll bridge. The inverse demand for bridge crossings Q
is given by P = 203Q, where P designates the potential toll fee.
(a) How many people would cross the bridge if there was no fee?
(b) What is the loss of consumer surplus associated with the charge of a bridge toll of $5?
(c) As the toll bridge operator you're debating raising the toll to $6. At this higher price, would the toll revenues increase or decrease? What does your answer tell you about the elasticity of demand? Consider the market for ice cream where the demand is given byQD=202P and the supply of ice cream is given by QS=4P10.
(a) Graph the supply and demand curves and find the equilibrium price and quantity.
(b) Now the government imposes a $1 tax on ice cream, to be collected from the buyer.
Plot the new curve. What is the new equilibrium price and quantity? What happens
to the price paid by the buyers? What happens to the price paid by the sellers?
(c) Who bears the greater burden of the tax? Explain why.
(d) How much tax revenue did the government generate?
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