d and e please 1. Consider a market described by the following equations:Qd = a + BPQ₁ = Q + μPSWhere a, ß, q and μ are parameters. Note that must be less than zero and the other parameters arepositive. Answer the following questions.Solve for the equilibrium price and quantity.a.b.C.Now suppose a specific tax, t > 0, is imposed on this market that has to be paid to thegovernment by sellers. Show in a clearly labeled supply and demand diagram what happens tothe equilibrium effectively price received by sellers, and the price paid by buyers. Be sure tolabel the price received by sellers and the price paid by buyers in terms of P*(t) and t.Set up the equilibrium condition. Then solve for the price paid by buyers, the price received bysellers, and the after tax equilibrium quantity in terms of the parameters of the model and thetax amount T.d.Using calculus and the equation that you found for P* in part c, find an expression for the taxincidence on the buyers and determine its sign.e.Now, show that the formula you found for tax incidence on buyers can be found usingelasticities at the market equilibrium before the tax is imposed. How does the tax incidence onbuyers depend on the price elasticity of supply? Verify your result with a supply and demanddiagram that varies the elasticity of supply at equilibrium.1

Market equilibrium is a fundamental concept in economics that represents a state in a market where…

d. Using calculus and the equation that you found for P* in part c, find an expression for the tax incidence on the buyers and determine its sign. e. Now, show that the formula you found for tax incidence on buyers can be found using elasticities at the market equilibrium before the tax is imposed. How does the tax incidence on buyers depend on the price elasticity of supply? Verify your result with a supply and demand diagram that varies the elasticity of supply at equilibrium.

d. Using calculus and the equation that you found for P* in part c, find an expression for the tax incidence on the buyers and determine its sign. e. Now, show that the formula you found for tax incidence on buyers can be found using elasticities at the market equilibrium before the tax is imposed. How does the tax incidence on buyers depend on the price elasticity of supply? Verify your result with a supply and demand diagram that varies the elasticity of supply at equilibrium.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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