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Economics Question

 
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Old 11-09-2012 at 11:50 PM   #1
jasmineb
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Economics Question
Does anybody understand this? I literally have no idea :( need help

Market demand is Qd = 520 -3P and market supply is Qs = 2P - 30. The government levies a per unit tax on consumers of the good; the new market demand is Qd’ = 490 - 3P. The amount of the per unit tax is
a. $10
b. $5
c. $30
d. $20
Old 11-10-2012 at 12:13 AM   #2
AngryBean
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emmm, I think its something about getting P when Qd=Qs, then finding P when Qd' = Qs, then you just use simple geometry from there, I dont remember which part tho.
Old 11-10-2012 at 12:14 AM   #3
wesiscool
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is the answer c?
Old 11-10-2012 at 12:24 AM   #4
Rayine
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Yes the answer is C
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Old 11-10-2012 at 12:27 AM   #5
Leeoku
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The way I thought about it is Qd = Qd'+tax therefore
520-3p = 490-3p+tax
Therefore tax = 30
Old 11-10-2012 at 09:17 AM   #6
Swampis
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The answer is actually a) $10.

Let Pc = the price consumers pay.

520 -3(Pc+x) = 490 -3Pc
520 -3Pc -3x = 490 -3Pc
520-3x = 490
-3x = -30
x=10
Old 11-10-2012 at 10:32 AM   #7
AngryBean
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How come anyone from life sci to chemical engineering answer an econ question, while all business students stand aside quietly?
Old 11-13-2012 at 11:10 PM   #8
Pixel
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I know this is after the test, but here's how I look at it (this will help for the exam):
Qd=Qs in equilibrium. Find Qe and Pe to start.
520-3P = 2P-30
550=5P
P=110, Q = 190

You now have Pe and Qe, now you need P1 and Q1.

Where Qd2 meets S1, we get:
2P-30=490-3P
5P=520
Pf (I called this Ps in the attached photo) =104, so Qtax=178 (sub Qtax into the supply equation)

We need to know what Pc is, so we know what to subtract Pf from (the difference is the tax). We get that by:
178=520-3p
3P=520-178
Pc=114

Because Pc-Pf=the amount of tax, we now know 114-104=$10 tax/unit.

We can also say because Pe was 110 and Pf is 104 that the tax burden on suppliers is $6, and because Pc is 114 the tax burden on consumers is $4. Supplies are paying more of the tax than the consumer and that makes them the more inelastic curve, whereas the consumers are more elastic because they take less of the tax burden.

Incidentally, the DWL is the green triangle and it's (Pc-Pf)*(Qe-Qs)/2=(114-104)*(190-178)/2=$60. The purple rectangle is tax revenue (it spans from Pf to Pc and Q=0 to Qtax but it wasn't a pretty articulatory picture), which is 10*178=$1780.

It's much easier for me once I start drawing graphs of what I'm doing, look at the attached picture and compare it with what I wrote step-by-step. The only thing you have to know once you can draw it is how to find the values where 2 lines intersect, which is by equating them and solving for the variable.

Hope that helps!
Edit: my image for you isn't uploading or linking well, so here's direct link: http://imageupper.com/s02/1/3/D13528...304115_1. jpg Final on the 12th, good luck everyone!



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