Posted: August 24th, 2015

Market Demand, Supply, and Equilibrium.

2. Calculate the equilibrium price and equilibrium quantity which clear the market based on your assigned values for Qd (cell B4)and Qs (cell B5).
3. Review the charts in Excel showing Demand, Supply, and Market Equilibrium. Note: The Price goes on vertical axis and Quantity goes on the horizontal axis.
4. Observe Consumer Surplus, Producer Surplus, Government Surplus, Total Surplus, and the Deadweight Loss under each of the following policies:
a. No taxation by the government.
b. Government imposes a $2 tax on the buyers (similar to sales tax, but the tax amount is fixed).
c. Government imposes a $2 tax on the sellers (you can think of it as an access to the market charge, similar to a tariff, but the tax amount is fixed.
5. Compare the three policies above and comment on the results:
a. Does it matter whether the tax is imposed on the buyers or the sellers?
b. Under which policy is the total surplus the highest?
c. Who benefits and who loses from imposing the tax?
d. Which of the three policies would be worth implementing? Why?


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