Reference no: EM133551204

Case Study: Suppose that the market for high powered motorcycles in Australia is competitive and illustrated by

the following demand and supply equations:

Demand: Qd = 8000 - 200P

Supply: Qs = 50P - 1000

Question a) Calculate the equilibrium price (P in $ 000) and quantity (Q, motorcycles per year). Show this equilibrium on a fully labelled diagram. Use your diagram to calculate the consumer surplus, producer surplus, and total surplus.

Question b) Now assume that the government wants to encourage consumers to buy electric motorcycles. The government imposes a tax on the sale of new motorcycles with traditional combustion engines. The aim of the tax is to reduce the number of sales of this type of motorcycle to 500 per year.

What is the specific (per unit) tax imposed by the government on motorcycle sellers to achieve this outcome? What is the total tax burden experienced by consumers, and by sellers? Using a new diagram that is fully labelled, show the tax, new consumer surplus and new producer surplus.

Question c) According to the model of supply and demand, is society better or worse off as a result of the tax imposed by the government in part 'b'? Explain your answer. Make sure you use the diagram from part 'b' and to show your calculations.