Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The price received by sellers with the tax is:

Question

Quizplus · Accepted Answer

To find the price received by sellers with the tax, we first need to adjust the supply function to account for the tax. Since the tax is $0.50 per gallon, we subtract this from the price in the supply equation to reflect the price received by sellers. The adjusted supply equation becomes QS = 4(P - 0.50) - 2. To find the equilibrium price with the tax, we set the demand function equal to the adjusted supply function: 10 - 2P = 4(P - 0.50) - 2. Solving for P gives us the price before the tax is subtracted, which is $2.33. Subtracting the $0.50 tax from this price gives us $1.83, which is the price received by sellers with the tax.

Suppose the Market Demand Function for Ice Cream Is Qd

Suppose the Market Demand Function for Ice Cream Is Q^d