# incidence of the tax

Assume that the demand function is given by x=P^-n, and the supply function by y= p^e. Find the equilibrium price. Determine the effect on the equilibrium price of the introduction of a tax t=0.1 if n= e=0.5. Finally, describe how the incidence of the tax is divided between the consumers and producers.

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#### Solution Preview

Answer:

We have,

x=P^(-n)=1/P^n

Or,

P=(1/x)^(1/n)

Now total revenue is:

TR=P*1/P^n =P^(1-n)

And marginal revenue ...

#### Solution Summary

This tutorial advises how the incidence of the tax is divided between the consumers and producers.

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