Suppose that the demand curve for a particular commodity is Qd = a- bP and the supply curve for this commodity is Qs = c+dP. The parameters a,b,c and…
Suppose that the demand curve for a particular commodity is Qd = a- bP and the supply curve for this commodity is Qs = c+dP. The parameters a,b,c and d are positive constants.a. Find the equilibrium price and quantity as a function of the constants a,b,c and d.b. Impose a tax of $u per unit on this good. Show that the total amount paid by consumers will be the same regardless of whether the tax is imposed onproducers or consumers.
a. At equilibrium, demand = supplyTherefore, Qd = Qs⇒ a – bP = c + dP⇒ P* = (a – c)/(b + d)Therefore, Q* = a – b[(a – c)/(b + d)] = (ab + bc)/(b + d) b. As a producer’s tax of…
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