Question

The demand and supply functions in a competitive market are given by q_d + 4p - 24 = 0 and 13p - q_s = 27 respectively. (a) Calculate the equilibrium price and quantity. (2 marks) (b) If a tax of #2 per item is introduced by the government, determine the effect on the market equilibrium. How is the payment of tax distributed and what is the effect on the producer's revenue? (6 marks) (c) Illustrate your solution with a sketch graph. (2 marks) [Ans: (a) p = 3, q = 12, (b) p = 77/17, q = 100/17; customer: #1.53, supplier: #0.47, revenue decrease by #21.12 ]

          The demand and supply functions in a competitive market are given by q_d + 4p - 24 = 0 and 13p - q_s = 27 respectively.
(a) Calculate the equilibrium price and quantity. (2 marks)
(b) If a tax of #2 per item is introduced by the government, determine the effect on the market equilibrium. How is the payment of tax distributed and what is the effect on the producer's revenue? (6 marks)
(c) Illustrate your solution with a sketch graph. (2 marks)
[Ans: (a) p = 3, q = 12, (b) p = 77/17, q = 100/17; customer: #1.53, supplier: #0.47, revenue decrease by #21.12 ]

The demand and supply functions in a competitive market are given by qd + 4p - 24 = 0 and 13p - qs = 27 respectively.
(a) Calculate the equilibrium price and quantity. (2 marks)
(b) If a tax of #2 per item is introduced by the government, determine the effect on the market equilibrium. How is the payment of tax distributed and what is the effect on the producer's revenue? (6 marks)
(c) Illustrate your solution with a sketch graph. (2 marks)
[Ans: (a) p = 3, q = 12, (b) p = 77/17, q = 100/17; customer: #1.53, supplier: #0.47, revenue decrease by #21.12 ]

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