The Demand and Supply in a Market Are Represented by the Equations

question 22

Essay

The demand and supply in a market are represented by the equations P = 50 - .2QD and P = 20 + .3QS.A spillover cost in production equal to $2 per unit exists in this market.(a) What are the equilibrium price and quantity?
(b) What are the optimal price and quantity?
(c) How large must a specific tax in this market be to eliminate the market failure? Is the tax equal to the difference between the equilibrium price and the optimal price?

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Definitions:

Discount Date

The last day on which a cash discount may be taken. The day on which a note is discounted (sold).

Due Date

The final day an invoice is to be paid. After that day the buyer may be charged interest. Also, the date by which a loan is to be repaid.

Remittance

Amount that a buyer actually pays after deducting a cash discount.

Discount Period

A certain number of days after the invoice date, during which a buyer may receive a cash discount. The time between a note’s discount date and its maturity date.