- Define each of the following terms. Then draw a simple supply and demand graph that illustrates each of these quantities. (You need not put numbers, just show the graph.)
- Consumer Surplus
- Producer Surplus
- Tax Revenue
- Deadweight Loss
- Suppose you have been told that the supply equation for a particular product is
and the demand equation is
. In both cases,
is given in thousands. You have also been told that the government is considering a tax of $1.50 on each item sold. Answer the following questions:
- What is the equilibrium point (quantity and price)?
- What is the consumer surplus, before taxes?
- What is the producer surplus, before taxes?
- What is the net social benefit for this market, before taxes?
- After the tax is imposed, how many fewer items will sell?
- What is the total revenue generated by the tax?
- What is the new consumer surplus after taxes?
- What is the new producer surplus after taxes?
- What is the deadweight loss for this tax?
- What is the new net social benefit?
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