Purchase Solution

# estimates of demand and supply

Not what you're looking for?

Suppose you are an aid to a government official deciding on some recently proposed excise tax on the welfare of her constituents. One way of measuring the impact on her constituents is to determine how that tax change affects the level of consumer surplus enjoyed by her citizens in her area. By using a formal analysis and estimates of demand and supply:
Q (demand) = 500 - 5P and Q (supply) = 2P- 60

1. Graph the supply and demand curves
2. What are the equilibrium quantity and equilibrium price?
3. How much consumer surplus exists in this market?
4. IF a \$2 excise tax is levied on this good, what will happen to the equilibrium price and quantity?
5. What will the consumer surplus be after the tax?

##### Solution Summary

Use estimates of demand and supply.

##### Solution Preview

Political economy - answers:

1) Given, Q (demand) = 500 - 5P and Q (supply) = 2P- 60, the equilibrium quantity & equilibrium price can be determined by equating the demand & supply equations.
500-5P = 2p - 60
560 = 7P
P = 560/7
P = \$ 80 .
Thus the equilibrium price =\$ 80
Equilibrium quantity can be calculated by substituting the equilibrium price in either demand or supply equation.
Q(demand) = 500-5p
= 500-5*80
Equilibrium quantity= 500 -400
= 100 units.

2) The supply & demand curves can be shown in the graph as follows. ...

##### Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

##### Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

##### Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

##### Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

##### Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.