Suppose market demand is P = 100 – ½ QD and market supply is P = 10 + ¼ QS. a) Sketch the demand and supply curves.
b) Find equilibrium price and quantity in the competitive market.
c) Calculate the consumers’ willingness to pay (WTP), expenditures, and Consumer Surplus.
d) Calculate the firms’ costs, revenues, and Producer Surplus.
f) Now suppose the government imposes a consumption tax of $10. What is the impact on equilibrium quantity in the market?
g) What is the impact on CS and PS? Discuss. h) What is the deadweight loss (DWL) of the consumption tax?
