1. Suppose market demand for gasoline is given by QD = 60-2P where QD is quantity demanded and P is the market price. Market supply is given by Qs = 4P where Qs is quantity supplied and P is the market price. (a) Find the equilibrium price and quantity in this market. (b) What is the consumer surplus and producer surplus? (c) Suppose that the government imposes a $3 tax on the good, to be included in the posted price (i.e. tax paid by suppliers). What is new equilibrium posted price? How much of that price do producers keep? What is the new market equilibrium quantity? What is the change in surplus for consumers? What is the change in surplus for producers?

1. Suppose market demand for gasoline is given by QD = 60-2P where QD is quantity demanded and P is the market price. Market supply is given by Qs = 4P where Qs is quantity supplied and P is the market price. (a) Find the equilibrium price and quantity in this market. (b) What is the consumer surplus and producer surplus? (c) Suppose that the government imposes a $3 tax on the good, to be included in the posted price (i.e. tax paid by suppliers). What is new equilibrium posted price? How much of that price do producers keep? What is the new market equilibrium quantity? What is the change in surplus for consumers? What is the change in surplus for producers?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Which of the following statement(s) is correct? (x) If a tax shifts the supply curve upward (or to the left), but the demand curve does not shift, we can infer that the tax was levied on both buyers and sellers of the good. (y) Suppose a tax is imposed on the sellers of cigarettes. The burden of the tax will be shared by the buyers and sellers of cigarettes but not necessarily equally. (z) When a tax is levied on sellers of a good, a wedge is placed between the price buyers pay and the price sellers effectively receive (and keep). (x). (y) and (z) A. B. (x) and (y) only C. D. E. (x) and (z) only (y) and (z) only (z) only
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