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How big an excise tax would need to be imposed in this

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Reference no: EM13323868

Suppose that the market for gasoline is given by the following equations:

Market Demand: Q = 50,000 – 2500P

Market Supply: Q = 10,000P

where P is the price of gasoline per gallon and Q is the number of gallons per day.

a. What is the equilibrium price and quantity in this market?

b. At the equilibrium you found in part (a), what is the value of consumer surplus? What is the value of producer surplus?

c. Suppose that the government thinks that gasoline consumption is too high. Suppose the government wishes to decrease gasoline consumption by 20,000 gallons per day. How big an excise tax would need to be imposed in this market in order for the government to reach its goal?

d. Given the excise tax you calculated in part (c), what is the value of consumer surplus with the excise tax? What is the value of producer surplus with the tax? What is the value of tax revenue with this tax? What is the value of consumer tax incidence with this tax? What is the value of producer tax incidence with this tax? What is the value of the deadweight loss with this tax?

Reference no: EM13323868

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