Problem: Suppose that demand for oranges is given by the following equations:
Q = -400 P + 2,000
With quanity (Q) measured in oranges per day and price (P) measured in dollars per Orange. The supply curve is given by:
Q = 1200 P
1. Compute and present graphically the equilibrium price and quantity of oranges.
2. Suppose that an excise tax of 25 cents per piece is imposed on oranges. What are the new supply and demand curves? What is the new equilibrium price and quantity of oranges? What is the new post-tax rice from the supplier's point of view? Illustrate your answer by drawing the supply and the demand curves.
3. Repeat the exercise for 25 cents sales tax instead of excise tax.
4. Explain in writing what happened when you compare the economic incidence of tax with its legal incidence.