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Calculating equilibrium price and quantity.

Suppose the market for widgets can be described by the following equations:

Demand: P = 20-Q

Supply: P = Q-5

Where P is the equilibrium price in dollars per unit and Q is the quantity in thousands of units.

a. What is the equilibrium price and quantity?

b. Suppose the government imposes a tax of $2.00 per unit to reduce widget consumption and raise government revenues. What will the equilibrium quantity be? Illustrate what will the new equilibrium price be? What determines the burden of taxation? prepare the general formula for the burden of taxation?

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M917916

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