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A Market Is Described by the Equations Qd = 40

Question 221

Essay

A market is described by the equations Qd = 40 - 2P, and Qs = -20 + 4P. A tax of $3 is placed on the seller of the product such that the new supply equation becomes Qs = -20 + 4(P - T), where T is the tax in dollars. What is the new price paid by buyers and the new take-home price for the sellers? What is the total amount of the deadweight loss created in this market?

Correct Answer:

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Original equilibrium = 40 – 2P = –20 + 4...

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