Problem
Suppose the demand for insulin pumps is QD = 2,000 and the supply of insulin pumps is QS = 0.5P - 1,000. What is the price that sellers receive per pump? Suppose the government imposes a tax of $400 per pump on sellers. What after-tax price per pump do sellers receive?
Suppose the market for soda is represented by the supply and demand equations:
QS = 35P - 39.75 and QD = 10.25 - 5P, where P is price per bottle and Q measures bottles per second.
1. What are the values of consumer and producer surplus?
2. If the government imposes a $0.50 tax per bottle, what are the values of consumer and producer surplus?
3. What is the deadweight loss from the tax? How much revenue does the tax yield?