Squeak eClean produces commercial sanitizer used to clean tanker trucks that haul liquid food products such as milk. This sanitizer a commodity like any other and at the wholesale level, there are many domestic and foreign producers that compete vigorously. Suppose you have the following estimated market demand and supply functions for the sanitizer. Qd = 248.08 + 2.2Y - 0.6PC + 1.2 PS - 4P Qs = - 10 + 2P In these equations, Q measures output in gallons per month (in 1,000’s), P is the price per gallon of the sanitizer, Y is annual average household income (in 1,000’s), PC is an index of commodity prices, and PS is the average price per gallon of other types of sanitizer. After gathering the latest data, you find that average household income is $
Squeak eClean produces commercial sanitizer used to clean tanker trucks that haul liquid food products such as milk. This sanitizer a commodity like any other and at the wholesale level, there are many domestic and foreign producers that compete vigorously. Suppose you have the following estimated market demand and supply functions for the sanitizer.
Qd = 248.08 + 2.2Y - 0.6PC + 1.2 PS - 4P
Qs = - 10 + 2P
In these equations, Q measures output in gallons per month (in 1,000’s), P is the
After gathering the latest data, you find that average household income is $36,400, the current level of the commodity price index is 110.6, and the average price per gallon of other types of sanitizers is $48.50.
- Find the current
equilibrium price and quantity in this market. - Find the equilibrium price and quantity in this market if the government imposes a $9 per gallon tax on sanitizers.
- What will happen to the price buyers pay per gallon as a result of the tax?
- What price will sellers receive (net price) per gallon after the tax?
- How much revenue will this tax raise for the government?
- How much of the tax burden is borne by buyers? How much is borne by sellers?
- What is the
deadweight loss for society from this tax?
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