7.7 pleaase explain ## 7.7. Sales Tax### Market EquilibriumConsider an industry with the following market demand and supply equations:- **Market Demand:** $ Q = 550 - 20p $- **Market Supply:** $ Q = 100 + 10p $Determine the equilibrium price and quantity.### Tax Impact AnalysisSuppose the government imposes a tax of $6 per unit to be paid by consumers. Analyze the impact on equilibrium price and quantity. Consider the scenario where the sales tax is instead paid by the seller. How would this affect the equilibrium outcomes?### Graphs/DiagramsNo graphs or diagrams are included in this text. However, when analyzing the problem, a supply and demand graph can be helpful to visualize the shifts caused by the tax imposition on consumers or sellers. The initial equilibrium can be identified where the demand and supply curves intersect. When a tax is implemented, the demand curve will shift vertically downwards by the amount of the tax if consumers pay it, or the supply curve will shift upwards by the same amount if sellers bear the tax.### ConclusionDetermining the new equilibrium involves finding the new intersection point of the shifted curve with the original supply or demand curve. The analysis will show how the tax affects market dynamics, including variations in price and quantity.

Market equilibrium is a state where the quantity of a good or service demanded by consumers equals the quantity supplied by producers. This results in no shortages or surpluses. In this state, the market is balanced, and the prices of goods or services tend to remain relatively stable over time.The equilibrium price is the price at which the quantity demanded equals the quantity supplied.a) At equilibrium, market demand = market supplyAt this P, b) At a tax of $6 on consumer, tax will be shared among both buyers as well as sellers which will fall in the ratio of (demand curve touching price axis - equilibrium price) to (equilibrium price - supply curve touching price axis) which is: Burden on consumers would be [12.5 / (12.5 + 25)] of total tax which is: 33.33% of $6 = $2While burden on producer is [25 / (12.5 + 25)] of total tax which is:66.67% of $6 = $4Equilibrium quantity falls to 210.c) If tax is paid by seller, tax will still fall in the same ratio among them because of their elasticity.New Qd = 280 - 2PThe equilibrium price and quantity is: P = 15 and Q = 250

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7.7. Sales tax. Consider an industry with market demand. Q = 550-20p and market supply Q = 100+10 p. Determine the equilibrium price and quantity. Suppose the government imposes a tax of $6 per unit to be paid by consumers. What is the impact on equilibrium price and quantity? What if the sales tax is paid by the seller instead of the buyer?

7.7. Sales tax. Consider an industry with market demand. Q = 550-20p and market supply Q = 100+10 p. Determine the equilibrium price and quantity. Suppose the government imposes a tax of $6 per unit to be paid by consumers. What is the impact on equilibrium price and quantity? What if the sales tax is paid by the seller instead of the buyer?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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