The demand function for organic apples is given by Qd = 20 – 2P while the supply function is given by Qs = 4P – 10.a. Solve for the equilibrium P* and Q*.b. Carefully graph the D & S curves. Include all intercepts and P* and Q* (**enlarge your graph so you can better show the questions below use graphing paper**)i. Suppose that the government legislates a $1/gallon to be collected from the buyer. Identify the new equation for the demand curve. Plot the new demand curve (on the same graph as b).ii. Solve for the new equilibrium PT* and QT* and indicate on your graph. On the same graph, indicate the P that consumers pay (PC) and the P that producers get to keep (PS).c. On another graph with the original D and S curves, impose the same tax ($1/gallon) to sellers. Identify the new equation for the supply curve. Plot the new supply curve. i. Solve for the new equilibrium PT* and QT* and indicate on your graph. On thesame graph, indicate the P that consumers pay (PC) and the P that producers get to keep (PS). d. Illustrate and calculate (per unit & total) the tax burden to consumers and producers (on both graphs in b & c).e. Illustrate and calculate the loss in consumer surplus and loss in producer surplus from the tax (for both your graphs in b and c)f. How much excess burden did the tax create? Calculate and identify the area using graphs from b and c.g. Based on your answers from b to f, what generalization/s can you make about tax imposition and tax incidence?h. Intuitively explain why there is an excess burden
The demand function for organic apples is given by Qd = 20 – 2P while the supply function is
given by Qs = 4P – 10.
a. Solve for the equilibrium P* and Q*.
b. Carefully graph the D & S curves. Include all intercepts and P* and Q* (**enlarge your
graph so you can better show the questions below use graphing paper**)
i. Suppose that the government legislates a $1/gallon to be collected from the
buyer. Identify the new equation for the demand curve. Plot the new demand
curve (on the same graph as b).
ii. Solve for the new equilibrium PT* and QT* and indicate on your graph. On the
same graph, indicate the P that consumers pay (PC) and the P that producers get
to keep (PS).
c. On another graph with the original D and S curves, impose the same tax ($1/gallon) to
sellers. Identify the new equation for the supply curve. Plot the new supply curve.
i. Solve for the new equilibrium PT* and QT* and indicate on your graph. On the
same graph, indicate the P that consumers pay (PC) and the P that producers get
to keep (PS).
d. Illustrate and calculate (per unit & total) the tax burden to consumers and producers (on
both graphs in b & c).
e. Illustrate and calculate the loss in
the tax (for both your graphs in b and c)
f. How much excess burden did the tax create? Calculate and identify the area using
graphs from b and c.
g. Based on your answers from b to f, what generalization/s can you make about tax
imposition and tax incidence?
h. Intuitively explain why there is an excess burden
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