Demand in a perfectly competitive market is Q = 100 - P. Supply in that market is Q = P - 10. What is the market equilibrium price and quantity? Given that price and quantity, how much consumer surplus, producer surplus, and deadweight loss is there? If the government imposes a $10 per unit sales tax, what is the new equilibrium price and quantity? Once the government imposes the tax, how consumer surplus, producer surplus, and dead-weight loss is there?
What will be an ideal response?
Prior to the tax, the market equilibrium price is $55. The market equilibrium quantity is 45 units. Consumer surplus is 1012.5. Producer surplus is 1012.5. There is no dead-weight loss because the tax has not been imposed yet. After the tax, the new equilibrium price is $50. The new equilibrium quantity is 40. Consumer surplus is 800. Producer surplus is 800. Dead-weight loss is now 25.
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Indicate whether the statement is true or false
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