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Suppose that the market demand-and-supply curves for the gasoline market are given below. In each case, quantity refers to millions of liters of gasoline/month: Qd is the quantity demanded; Qs is the quantity supplied; p is the price per liter (in cents).
p = 350 - 24Qd
p = 140 + 6Qs
1. What is the market equilibrium quantity and price?
2. Now suppose the government collects a sales tax of 46 cents/liter on gasoline suppliers. What is the new equilibrium quantity and price? What is the price that consumers pay now? What is the price that suppliers receive now? (Hint: derive the new supply curve first)
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