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Suppose the Demand for Some Good Can Be Estimated Using d(b+d)\frac { d } { ( b + d ) }

Question 83

Essay

Suppose the demand for some good can be estimated using the equation QD = a - bP,and the supply can be estimated using the equation QS = c + dP,where a is the intercept and b is the slope of the demand curve,and c is the intercept and d is the slope of the supply curve.P is the equilibrium price in the market.
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A)If a per-unit excise tax of size T were imposed on each unit of this good sold in the market,show that the percentage of the tax born by the consumer is d(b+d)\frac { d } { ( b + d ) } ,and the percentage of the tax born by the supplier is b(b+d)\frac { - b } { ( b + d ) } .
[Hint: The tax (T)is equal to the price the consumer pays (i.e. ,PD)minus the price received by the supplier (PS).Therefore,T = PD - PS.Rearrange and substitute into one of the equations above.]

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(a)Setting the demand and supply curves ...

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