1 and 2 examine the market for Rmags. The demand for Rmags is given by Q = 12,500–500P
and the supply by Q =-2500 + 250P.
2) Suppose that a $1.20 per unit tax is placed on the Rmag producers.
a.What is the new equilibrium price and quantity?
b.What do buyers pay per unit? What is the total consumer expenditure?
c. What do sellers get per unit? What is the total seller revenue?
d.How much tax revenue iscollected?
Solution
a) Price paid by consumer = P + Tax amount =p+1.20
quantity demanded= 12500 - 500(p+1.20)= 11900 -500p. Now at equilibrium quantity
demanded= quantity supplied,11900 - 500p= -2500+250p = 14400= 750p= 19.2=p(price of the
seller). For consumer price is 19.2+1.20=$ 20.4 and quantity is 2300
b) price paid by consumer is 19.2+ 1.20=$ 20.4. Total consumer expenditure= 20.4* 2300=
$46920
c) price recieved by sellers = $19.2. Total sellers revenue is 19.2* 2300= $44160
d)Tax revenue is collected= $2760