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Suppose a market for petrol is described by the following demand and supply equations:
Q0= 20 - 2P
Qs= -8 + 2P
Where QD is the quantity demanded in thousand units, Qs is the quantity supplied in thousand units, and P is the price in rupees per liter.
What is the equilibrium price and quantity?
Now suppose that the government imposes a tax of Rs 2 per liter to reduce petrol consumption and to raise government revenue. What will be the new equilibrium price for buyers and sellers and the new equilibrium quantity?
How much will be the burden of the tax per liter on buyers and sellers each?
What will be the government total revenue?
Calculate the Dead Weight Loss.
1) Calculate the net loss.
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