The demand and supply equations for a product are:Qd = 300 - 6P and Qs = -40 + 6P.Determine the market equilibrium and draw graphs.Suppose that the government decides to impose a flat tax of 10% on each unit sold. Show that the price that consumer pay would be the same if the government imposed a tax of Rs. 1.70 per unit sold. Draw graphs and explain.Also calculate the total revenue earned by sellers before and after the tax, the tax revenue raised by the government, changes in consumer and producers surplus and dead weight loss.

Market equilibrium is achieved at the point where the demand and supply curve intersects, i.e the…

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The demand and supply equations for a product are:

Q^d = 300 - 6P and Q^s= -40 + 6P.

Determine the market equilibrium and draw graphs.
Suppose that the government decides to impose a flat tax of 10% on each unit sold. Show that the price that consumer pay would be the same if the government imposed a tax of Rs. 1.70 per unit sold. Draw graphs and explain.
Also calculate the total revenue earned by sellers before and after the tax, the tax revenue raised by the government, changes in consumer and producers surplus and dead weight loss.

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

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