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Dead-weight loss owing to the imposition

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Reference no: EM131441849

Assume that the demand curve for sportingguns is described by Qd = 100 - 2 P and the supply is described by Qs = -20 + P whereQd and Qs are expressed in millions of guns and P is expressed in $'s/gun.

(a) Compute the competitive equilibrium price and quantity. As well, compute the total value created in the market for sporting guns. Clearly show all calculation and illustrate your answer using a well-labeled graph.

(b) Suppose that the government views sporting guns as a luxury product and taxes the consumers $6/gun for each gun they buy. Calculate the new price of sporting guns and the quantity of sporting guns with the tax. What is the effect on consumers and on producers of sporting guns as a result of the tax? Clearly show all calculations and illustrate your answer using a well-labeled graphs.'

(c) What is the net effect of the tax on the market of sporting guns? Specifically, calculate the dead-weight loss owing to the imposition of the tax on sporting guns. Clearly show all calculations and illustrate your answer using a well-labeled graph.

Reference no: EM131441849

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