Homework Answers
A) the EQUILIBRIUM will be at where demand equals to supply,
220-25p=20+75p
200=100p
P*=200/100=2
Q*=20+75*2=170
B)with tax of 0.5 , supply function will change to,
Qs=20+75(p-0.5)
Qs=20-37.5+75p=-17.5+75p
Equilibrium,
-17.5+75p=220-25p
100p=237.5
P*=237.5=2.375
Q*=-17.5+75*2.375=160.625
Tax incidence on buyers=new equilibrium price- old EQUILIBRIUM is price=2.325-2=0.325
Tax incidence on seller=tax - tax incidence on consumer=0.5-0.325=0.175
C) deadweight loss=1/2*tax* quantity difference=1/2*0.5*(170-160.625)=1/4*9.375=2.34
D) total tax revenue=tax* total quantity=0.5*160.625=80.3125
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