Name Key
 

In the Land of Hialeah the supply curve for roses is given by

and the demand curve for roses is given by

A. When the quantity demanded is 5 what must have been the price? 5=10-.5P ==> P=10

B. When the price is 15 what is the quantity supplied? -10+1.5(15) = 12.5

C. What are the equilibrium price and quantity? P Q  Set the equations equal to one another and solve: P = 10 and Q = 5

D. What is the price elasticity of demand at the equilibrium price and quantity?   Because fo the form of the demand curve we don't need to invert the slope. elasticity = (1/2)(10/5)

E. Suppose that a $.50 excise tax (i.e. a per unit tax) is collected from the supplier.  If the seller is to continue supplying the same quantity as at the 'no tax' equilibrium what gross price must she receive? Now the seller wants $0.50 more per rose, so 10.50.  This has the effect of shifting the supply curve intercept UP by $0.50.

The demand curve remains unchanged and can be rewritten as P = 20-2Q.  The supply curve was P = (20/3)+(2/3)Q.  After the tax the seller needs another 50¢ per rose: P = (20/3)+(1/2)+(2/3)Q 

F. What will be the new equilibrium price and quantity? P  10.37 Q  4.81

G. What is the change in price paid by the consumer between parts C. and F. (before and after the imposition of the tax)?  .375

H. What is the change in the price received by the seller, net of taxes?  .125