Solved: Suppose the government imposes a tax of 1 to reduce tea, Macroeconomics

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Suppose the government imposes a tax of 1 to reduce tea

Suppose the tea market can be described by the following equations:

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

where p is the price in dollars and Q is the quantity in kilograms.

a. What is the equilibrium price and quantity?

b. Suppose the government imposes a tax of $1 to reduce tea consumption and raise government revenue. What will the newequilibrium quantity be? What price will the buyer pay? What amountper kilogram will the seller receive? How much is the inefficiency ofthe tax to the economy?

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Macroeconomics: Suppose the government imposes a tax of 1 to reduce tea

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