Suppose the demand and supply for a perfectly competitive market are given by:
D(P) = 90,000 - 2,000P for 0≤P≤45
S(P) = 8,000P for 0≤P≤10
Draw the supply and demand curves and solve for the equilibrium price and quantity. What is the CS and PS?
Suppose the price is $8.80. What is the quantity exchanged? Is this an equilibrium price? Why or why not?
Suppose the price is $9.80. What is the quantity exchanged? Is this an equilibrium price? Why or why not?
Suppose a one-dollar excise tax is imposed:
D(P) = 90,000 - 2,000P for 0≤P≤45
S(P) = -8.000 + 8,000P for 1≤P≤11
What are the new equilibrium price and quantity? How much of the tax is borne by consumers and how much by producers? What is the new CS and PS? What is tax revenue?