2. Consider a market where the supply and the demand are given by Q°P)= 100P and Q®P)=2000– 100P. (a) Find the equilibrium price, quantity, consumer surplus, producer surplus, and the aggregate surplus. (b) Suppose the government wants to raise revenue by imposing tax of ¥4 per unit. What is the price producers get, the price consumers pay, the equilibrium quantity, the tax revenue, and the dead weight loss? (c) Suppose the government is thinking about imposing an ad valorem tax instead of per unit tax. What does the tax rate has to be to keep the price consumers pay the same as in the per unit tax case? (d) Which tax scheme is better for the economy? Why?
2. Consider a market where the supply and the demand are given by Q°P)= 100P and Q®P)=2000– 100P. (a) Find the equilibrium price, quantity, consumer surplus, producer surplus, and the aggregate surplus. (b) Suppose the government wants to raise revenue by imposing tax of ¥4 per unit. What is the price producers get, the price consumers pay, the equilibrium quantity, the tax revenue, and the dead weight loss? (c) Suppose the government is thinking about imposing an ad valorem tax instead of per unit tax. What does the tax rate has to be to keep the price consumers pay the same as in the per unit tax case? (d) Which tax scheme is better for the economy? Why?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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answers for part b,c and d
Transcribed Image Text:2. Consider a market where the supply and the demand are given by
Q$iP) = 100P and QºP)=2000– 100P.
(a) Find the equilibrium price, quantity, consumer surplus, producer surplus,
and the aggregate surplus.
(b) Suppose the government wants to raise revenue by imposing tax of ¥4
per unit. What is the price producers get, the price consumers pay, the
equilibrium quantity, the tax revenue, and the dead weight loss?
(c) Suppose the government is thinking about imposing an ad valorem tax
instead of per unit tax. What does the tax rate has to be to keep the price
consumers pay the same as in the per unit tax case?
(d) Which tax scheme is better for the economy? Why?
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