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Suppose that instead of a supply-demand diagram, you are given the following information:
Qs = 100 + P
Qd = 500- 4P
From this information, compute the equilibrium price (P) and quantity (Q).
Now suppose that a tax (T) is placed on sellers so that
Qs = 100 + (P -T).
If T = 20, solve for the new equilibrium price and quantity. (Note: P-T is the price received by sellers and P 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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