Answered: Suppose Suzuki has the following demand…

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter6: Demand And Elasticity

Section: Chapter Questions

Problem 3TY

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Suppose Suzuki has the following demand and supply function for Cultus VXL:

Q^d = 55 - 5P Q^s = -50 + 10P

After the government decided to impose tax on the production of Cultus VXL, the new supply function:

Q^s = -60 + 10P

Given the information above , answer the following questions:

Find out the equilibrium price and quantity before tax.
Find consumer and producer surplus before tax.
Determine government revenue and dead weight loss after tax.

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

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