Suppose that King Kanuta, whom you met in your workbook, demands that each of his subjects give him 2 coconuts for every coconut that they consume. The king puts all of the coconuts that he collects in a large pile and burns them. The supply of coconuts is given by S(p_s) = 100p_s, where p_s is the price received by suppliers. The demand for coconuts by the king's subjects is given by D(p_d) = 6,000 - 100p_d, where p_d is the price paid by consumers. In equilibrium, the price received by suppliers will be

Question

Quizplus · Accepted Answer

In equilibrium, the quantity demanded by consumers must equal the quantity supplied by producers. Set D(p_d) = S(p_s): 6,000 - 100p_d = 100p_s Solving for p_s: 200p_s = 6,000 p_s = $30 However, this is the price received by suppliers before the King's tax is imposed. After the tax, the price received by suppliers is: p_s * (1 - 2) = $30 * (1/3) = $10 Therefore, the correct answer is B) $18, which is 2/3 of the price received by suppliers before the tax.

Suppose That King Kanuta, Whom You Met in Your Workbook