QUESTION ONE Suppose that a market for tomatoes is given by the following demand and supply equations Qd = 40 − 2P Qs = −4 + 2P Where Qs, Qd and P, are the quantity demanded, quantity supplied and Price for tomatoes respectively. i. Determine the equilibrium price and quantity of tomatoes. ii. On the same diagram, draw the demand and supply curve, clearly showing the intercepts, equilibrium price and equilibrium quantity. iii. Calculate the consumer surplus, producer surplus and total surplus. iv. Suppose that the government introduces a fixed tax of ZMW5 per unit of tomato. a) Calculate the new equilibrium price and quantity. b) Find the new consumer surplus, producer surplus, total surplus, and the deadweight loss? c) What is the incidence of a tax?
QUESTION ONE
Suppose that a market for tomatoes is given by the following
Qd = 40 − 2P
Qs = −4 + 2P
Where Qs, Qd and P, are the quantity demanded, quantity supplied and
i. Determine the
ii. On the same diagram, draw the demand and supply curve, clearly showing the intercepts, equilibrium price and equilibrium quantity.
iii. Calculate the
iv. Suppose that the government introduces a fixed tax of ZMW5 per unit of tomato.
a) Calculate the new equilibrium price and quantity.
b) Find the new consumer surplus, producer surplus, total surplus, and the
c) What is the incidence of a tax?
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