WIDGETS
P = 80 - Q (Demand)
P = 20 + 2Q (Supply)
Now suppliers must pay a tax of $6 per unit. Find the new equilibrium price-inclusive price and quantity.
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Answer: Now suppliers do not get the full price when they make a sale - they get $6 less. This changes our supply curve to: P - 6 = 20 + 2Q (Supply)
P = 26 + 2Q (Supply)
To find the equilibrium price, set the demand and supply equations equal to each other:
80 - Q = 26 + 2Q
54 = 3Q
Q = 18
Thus our equilibrium quantity is 18. To find our equilibrium (tax inclusive) price, we substitute our equilibrium quantity into one of our equations. I'll substitute it into our demand equation:
P = 80 - Q
P = 80 - 18
P = 62
Thus the equilibrium quantity is 18, the equilibrium price (with tax) is $62, and the equilibrium price without tax is $56. (62-6)
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