Question

Suppose the market demand for a good takes the form Q b =100−2P and market supply takes the form: Q 5 =−50+3P Suppose a $5 per unit tax is applied to sellers in the market. How much tax revenue is collected?

Answer 1

The tax revenue collected is $510.

Step-by-step explanation:

The tax revenue collected can be calculated by multiplying the tax rate per unit by the quantity sold in the market. In this case, a $5 per unit tax is applied to sellers.

To find the quantity sold, we need to solve for P, the market price, when the demand and supply are equal.

Setting the supply equation Qs = 2 + 5P equal to the demand equation Qd = 100 - 2P, we find the equilibrium price P = 20.

Substituting this price into the supply equation, we can calculate the quantity sold Qs = 2 + 5(20) = 102.

The tax revenue collected is equal to the tax rate per unit ($5) multiplied by the quantity sold (102 units):

Tax revenue = $5/unit * 102 units = $510