Chapter 50, Problem 2FRQ

a)

To determine

Equilibrium price and quantity without tax

Explanation of Solution

Equilibrium price is denoted with PE and quantity is denoted with QE without tax:

  

Economics Concept Introduction

Introduction: When quantity demanded and supply of goods are equal then this situation is called market equilibrium

b)

To determine

Quantity sold in market post tax

Explanation of Solution

Quantity sold in market post tax is denoted with QT on graph:

  

Economics Concept Introduction

Introduction: Quantity is the amount of goods which are sold or supplied in the market.

c)

To determine

Price paid by consumers post tax

Explanation of Solution

Price paid by consumers post tax is denoted with PC on graph:

  

Economics Concept Introduction

Introduction: Price of goods influence by adding tax which means price increases by imposing tax on goods.

d)

To determine

Price received by producers post tax

Explanation of Solution

Price received by producers post tax is denoted with PP on graph:

  

Economics Concept Introduction

Introduction: Price of goods influence by adding tax which means price increases by imposing tax on goods.

e)

To determine

Tax revenue

Explanation of Solution

  

Tax revenue on the graph is shown under the shaded area of PP.

Economics Concept Introduction

Introduction: Tax revenue is the earning which is collected by imposing or adding tax on the sale of goods.

f)

To determine

The deadweight loss

Explanation of Solution

The deadweight loss on the graph is denoted with DWL:

  

Economics Concept Introduction

Introduction: When supply and demand are out of equilibrium then there is deadweight loss due to market inefficiency.