Suppose That Instead of a Supply-Demand Diagram, You Are Given

question 26

Essay

Suppose that instead of a supply-demand diagram, you are given the following information:
Q_s = 100 + 3P
Q_d = 400 - 2P
From this information compute equilibrium price and quantity. Now suppose that a tax is placed on buyers so that
Q_d = 400 - 2(P + T).
If T = 15, solve for the new equilibrium price and quantity. (Note: P is the price received by sellers and P + T is the price paid by buyers.) Compare these answers for equilibrium price and quantity with your first answers. What does this show you?

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Definitions:

Total Revenue

The complete amount of income generated by the sale of goods or services before any costs are subtracted.

Total Cost

The sum of all costs incurred by a business in the production of goods or services, including both fixed and variable costs.

Short-Run Supply Curve

A curve showing the relationship between the price of a good and the quantity supplied over a short period, where some production inputs are fixed.

Marginal Cost

The cost to produce one additional unit of a good or service.