Taxation Practice Problems

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Problem:

Original Demand: P = 819 + (-2 Q)

Original Supply: P = 147 + 9 Q

An ad valorem tax of 21% is on supply.





























































Answer:

After-tax Demand: P = 819 + (-2 Q)

After-tax Supply: P = 186.07594936709 + 11.392405063291 Q

Market price: P = 696.81818181818

Market quantity: Q = 61.090909090909

Taxed price: P = 724.48015122873

Taxed quantity: Q = 47.259924385633

Total tax consumer pay: 1307.3025827004

Total tax producer pay: 5882.8616221517

Dead weight loss: DWL = 1052.1287585467