The government introduces a specific tax of $2 per unit on a good. The pre‑tax market is described by the linear demand curve $Q_d = 120 - 4P$ and the linear supply curve $Q_s = -20 + 2P$, where $P$ is the price in dollars and $Q$ the quantity.

(a) Find the equilibrium price and quantity before the tax.

(b) After the tax, determine the price paid by consumers, the price received by producers, the new equilibrium quantity, and the dead‑weight loss caused by the tax (expressed in dollars, rounded to two decimal places).

Question

The government introduces a specific tax of $2 per unit on a good. The pre‑tax market is described by the linear demand curve $Q_d = 120 - 4P$ and the linear supply curve $Q_s = -20 + 2P$, where $P$ is the price in dollars and $Q$ the quantity.

(a) Find the equilibrium price and quantity before the tax.

(b) After the tax, determine the price paid by consumers, the price received by producers, the new equilibrium quantity, and the dead‑weight loss caused by the tax (expressed in dollars, rounded to two decimal places).

Accepted Answer

Before tax: price $23.33, quantity 26.67. After tax: consumers pay $24.00, producers receive $22.00, quantity 24 units, dead‑weight loss $2.67.

Gce Model Questions Vol1 2025 Economics Question 22

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