A grocery store in a small town has a supply curve for oranges that is given by the equation P=1/10Q+1. The store faces a weekly demand curve for oranges given by P=16-2/5Q where price is measured in dollars and quantity is measure in bags of oranges.
a) Plot the supply and demand curves on a scale diagram.
b) What is the equilibrium market price the store will charge and how many bags will consumers buy? What is the store’s revenue?
c) What is the Total Market Value of this market? How much is the consumer surplus?
d) Suppose the government added a tax of $1 per bag of oranges. How many bags will consumers now buy and how much will they pay?