The Health Ministry is evaluating the data of the soft beverages market. Demand function: QD=290−5P Supply function: QS=−60+5P (a) Find the Total Surplus. The authority is concerned about the increasing obesity rate in the country. Hence, they have decided to impose a tax of TK 10 per unit on soft drinks. (b) What is the total new consumer surplus and producer surplus after government intervention?

The Health Ministry is evaluating the data of the soft beverages market. Demand function: QD=290−5P Supply function: QS=−60+5P (a) Find the Total Surplus. The authority is concerned about the increasing obesity rate in the country. Hence, they have decided to impose a tax of TK 10 per unit on soft drinks. (b) What is the total new consumer surplus and producer surplus after government intervention?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.10P

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The demand and supply equations for a product are: Qd= 300 — 6P and Qs= -40 + 6P. Determine the market equilibrium and draw graphs. Suppose that the government decides to impose a flat tax of 10% on each unit sold. Show that the price that consumers pay would be the same if the government imposed a tax of Rs. 1.70 per unit sold. Draw graphs and explain. Also calculate the total revenue earned by sellers before and after the tax, the tax revenue raised by the government, changes in consumer and producers surplus, and deadweight loss
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