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drek231 [11]
3 years ago
12

Suppose you are an aide to a U.S. Senator who is concerned about the impact of a recently proposed excise tax on the welfare of

her constituents. You explained to the Senator that one way of measuring the impact on her constituents is to determine how the tax change affects the level of consumer surplus enjoyed by the constituents. Based on your arguments, you are given the go-ahead to conduct a formal analysis, and obtain the following estimates of demand and supply:
Qd=500-5P
Qs-2P-60
(a) What are the equilibrium quantity and equilibrium price? Graph your solution.
(b) If a $2 excise tax is levied on this good, what will happen to the equilibrium price and quantity? Show the changes in your graph from part (a).
(c) How much tax revenue does the government earn with the $2 tax?
Business
1 answer:
Molodets [167]3 years ago
8 0

Answer:

(a) P = 80 and Q= 100

(b) P = 80.57 and Q= 97.15

(c) Tax revenue = 194.3

Explanation:

Qd= 500 - 5P

Qs = 2P - 60

(a)

In equilibrium

Qd = Qs \\500 - 5P = 2P - 60 \\7P = 560 \\P = 80 \\

Putting this value of P back into the Qd or Qs equation

Qd = 500 - 5p\\Q = 500 - 5 (80) \\Q = 500 - 400 \\Q = 100

Thus, equilibrium price is 80 and equilibrium quantity is 100

(b)

When a tax is imposed the supply curve shifts up to the left by the amount of the tax. The new supply curve is given by

Qs = 2(P-2) - 60 \\Qs = 2p - 4 - 60 \\Qs = 2P - 64

The new equilibrium is

Qd = Qs \\500 - 5P = 2P - 64 \\7P = 564\\P = 80.57 \\

Substitute it into Qs or Qd we get

Q = 500 - 5 (80.57 ) \\Q = 97.15

(c)

Tax revenue = Tax rate * Quantity \\                      = 2 * 97.15\\                      = 194.3

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1 year ago
occurs in markets with a high concentration of sellers. Any price offered by one company will be matched by its competitors in o
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Answer:

The answer would be PRICE SIGNALING

Explanation:

Price signaling may occur when consumers have  imperfect information about product quality. To infer quality, consumers may rely on previous experience or may use some of the product’s observable characteristics, such as  the product’s price. We examine the scenario whereby the firm can endogenously change  consumers’ beliefs about the product’s quality by altering both the price and quality of its product. Our main findings are that, in this type of setting, price signaling causes  the firm to raise its price, lower its quality, and dampen the degree to which it responds to cost shocks. If the cost of adjusting quality is sufficiently high, the dampening effect  is pronounced in the downward direction, meaning that price signaling  causes prices to  respond less to cost decreases than cost increases.

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Answer:

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Read 2 more answers
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Answer:

Note: <em>The complete question is attached as picture below</em>

1a. The one year spot rate can be calculated using the one year zero bond.

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Price of the 2 year zero bond = 1,000 / 1.1602

Price of the 2 year zero bond = 861.9203586

Price of the 2 year zero bond = $861.92

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