Markets

A. How do the equations demonstrate the Law of Supply and the Law of Demand?

B. What is the equilibrium price and quantity in the market?

C. What would be the consumer surplus for a consumer in this market who was willing to pay $6 for this good?

D. What would be the producer surplus for a producer in this market who was willing to produce this good for $4?

E. Suppose the government imposes a price ceiling of $4 on this market, what effect would this policy have on the market?

F. How would the price ceiling affect the consumer in this market who was willing to pay $6 for this good and the producer in this market who was willing to produce this good for $4?

Consider how a $2 tax (paid by buyers) would affect the market.

G. How would this tax affect the amount of goods bought and sold in the market?

H. How much of the tax would be borne by the buyers and how much would be borne by the sellers.

Sample Problem # 2 - Elasticity and Tax Burden

Consider a market that has Supply and Demand Curves that are shown to the right:

A. What is the equilibrium price and quantity in this market?

B. Suppose the government imposes a $2 sales tax (paid by the buyer) on this market. What will be the price paid by the buyers, the price received by sellers and the new quantity sold in the market?

C. How is the $2 tax borne by the buyers and sellers in the market?

D. What is the price elasticity of demand from a price of $5 to a price of $8 for for this market?

E. What is the price elasticity of supply from a price of $5 to a price of $8 for this market?

F. How does the price elasticity for supply and demand for this price range correspond to how the tax is borne by the buyers and sellers in this market?