A recent hot issue in Ghana is energy. Suppose the demand for energy is described by Q=50-0.5P and the supply of energy by Q=P-10. (a) Graph the supply and demand curves carefully. Determine the equilibrium price and quantity of energy. (b) Some lawmakers decide that the problem with Ghana is that the price of energy is too high. They propose a bill that would set a price limit of $30 per unit of energy. If enacted, what will be the effect of this law on the quantity of energy supplied and demanded? Is the market on equilibrium? Explain. If not, calculate the shortage/surplus that results. (c) Other lawmakers decide that energy prices are too low and are considering a tax on energy to encourage conservation. What will be the effect on equilibrium price and quantity of a $20 per unit tax on energy, if the tax is collected from suppliers? Show this on the original supply and demand diagram as well. (d) Using the results from part (c) calculate the economic price incidence for suppliers and demanders of energy due to that tax. Who pays more and why? (e) Revenue that will accrue to the tax authorities. Comment on your results in (b) and (c) above
A recent hot issue in Ghana is energy. Suppose the demand for energy is described by Q=50-0.5P and the supply of energy by Q=P-10.
(a) Graph the
(b) Some lawmakers decide that the problem with Ghana is that the price of energy is too high. They propose a bill that would set a price limit of $30 per unit of energy. If enacted, what will be the effect of this law on the quantity of energy supplied and demanded? Is the
(c) Other lawmakers decide that energy prices are too low and are considering a tax on energy to encourage conservation. What will be the effect on equilibrium price and quantity of a $20 per unit tax on energy, if the tax is collected from suppliers? Show this on the original supply and demand diagram as well.
(d) Using the results from part (c) calculate the economic price incidence for suppliers and demanders of energy due to that tax. Who pays more and why?
(e) Revenue that will accrue to the tax authorities.
Comment on your results in (b) and (c) above
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