Find consumer and producer surplus

Reference no: EM131250656

Consider a market in which the demand and supply curves are

where q^D and q^S are the quantities demanded and supplied, and pD and pS are the prices paid by the buyer and received by the seller, measured in dollars.

a) Find the equilibrium in the absence of government intervention. Find consumer and producer surplus.

b) Suppose that the government levies of tax of $6 on each unit of the good exchanged. Find the new equilibrium. Find the changes in consumer surplus, producer surplus, and the surplus collected by government. Find the welfare cost of the tax.

c) Suppose that the government instead places a subsidy of $3 on each unit of the good exchanged. Find the new equilibrium. Find the changes in consumer surplus, producer surplus, and the surplus collected by government. Find the welfare cost of the subsidy.

Reference no: EM131250656

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