What is the market equilibrium outcome

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Assignment:

1. Suppose the market for laser pointers consists of 2 types of people: professors and cat lovers. The professors have an individual demand of qProf = 13 - 1/5 P and the cat lovers have an individual demand of qCat = 20 - 1/2 P.

(a) If there are 30 consumers with a demand of qP rof and 8 consumers with a demand of qCat, then what is the (inverse) market demand curve P(QD) (for all 38 people)? Illustrate it in a graph.

(b) Suppose the (inverse) market supply curve is P = 1/15 QS , what is the market equilibrium outcome? (Hint: Both groups buy laser pointers and your quantity should be somewhere between 250 and 400.) What is the consumer and producer surplus in this case? (Reminder: Your consumer surplus will be ugly to calculate since the demand curve is discontinuous).

(c) The government has become concerned about long term environmental harm from improper disposal of the laser pointers. To alleviate some of the burden, the government decides to impose a $7.50 excise tax on each laser pointer sold. What is the new equilibrium? How much has the government raised in tax revenue? How big is the dead weight loss? What is the tax incidence for the consumers?

Reference no: EM133285449

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