--%>

Question based on imposesing tax

Given equations describe market for widgets

                        Demand: P = 10 - Q Supply: P = Q - 4

Here P denotes the price in dollars per unit and Q denote to the quantity in thousands of units. Assume the government imposes a tax of $1 per unit to decrease widget consumption and raise government revenues. Determine new equilibrium quantity be? What price will the buyer pay? What amount per unit will the seller receive?

Along with the imposition of a $1.00 tax per unit, the demand curve for widgets shifts inward. At each price, the consumer desire to buy less. Algebraically, the new demand function is:
                                       P = 9 - Q.
The new equilibrium quantity is found in the same way as in (2a):
                                  9 - Q = Q - 4, or Q* = 6.5.
To find out the price the buyer pays, PB* , substitute Q* into the demand equation:
                                  PB* = 10 - 6.5 = $3.50.
To find out the price the seller receives, Ps* , substitute Q* into the supply equation:
                                  Ps* = 6.5 - 4 = $2.50.

   Related Questions in Finance Basics

  • Q : Explain working of accounts receivable

    Explain working of accounts receivable factoring? And describe benefits to the two parties involved and risks? Factoring is while one firm sells accounts receivable (AR) to another. The purchasing firm is termed as a factor. The factor earns

  • Q : Components of the M1 money supply

    Normal 0 false false

  • Q : Sensitivity analysis report ABC Company

    ABC Company manufactures three types of products and has provided you with the following linear problem: Max Z=15X1+20X2+14X3 (Total profit)s.t.5X1+6X2+4X3<=210 (Total labor hours available)10X1+8X2+5X3<=200

  • Q : Define operating leverage effect and

    Define operating leverage effect and what causes it? Describe potential benefits and negative consequences of high operating leverage? The operating leverage effect is the phenomenon where a small change in sales triggers a comparatively large

  • Q : Influence the economy in short run and

    Normal 0 false false

  • Q : Describe price–quantity effects Normal

    Normal 0 false false

  • Q : Riskiness of portfolio with very low

    What happens to the riskiness of portfolio if assets along with very low correlations (even negative correlations) are combined? How successfully diversification decreases risk based on the degree of correlation among the two variables in questi

  • Q : Conditions in which warrants value high

    Under what conditions is a warrant's value high? Describe. A warrant's value would be great when the stock price, time to expiration, and/or expected stock price volatility is great.

  • Q : Chartered bank loan policy Normal 0

    Normal 0 false false

  • Q : What is Personal Services Personal

    Personal Services: It is a category of expenditure that comprises such objects of expenditures as the payment of wages and salaries of state employees and employee advantages, comprising the state's contribution to the Public Employees' Retirement Fun