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Chapter 3: Simultaneous Equations: Worked Example 3.12
Chapter 3: Simultaneous Equations: Worked Example 3.12
www.wiley.com/college/Bradley John
John Wiley
Wiley and
and Sons
Sons 2013
2013
Chapter 3: Simultaneous Equations
Distribution of Tax
and
Pd = Ps at equilibrium
Equilibrium:
P Qe = 90
100
Pe =55
P = 10 + 0.5Q
P = 55
P = 100 - 0.5Q
10
Q
- 20 0 Q = 90 200
unit:
translated vertically
upwards by 6 units
Qe = 84
Substitute Q = 84 into either (1) or (3) and solve for Q
translated vertically
upwards by 6 units
P = 10 + 0.5Q
Equilibrium, with
P with tax tax:
100 Q = 84, P = 58
P = 10 + 0.5Q
P = 58
P = 55
P = 100 - 0.5Q
10
Q
- 20 0 200
Q = 84 Q = 90
P
P = 10 + 0.5Q
E1
58
55 E0
P = 100 - 0.5Q
16
10
0 Q
0 84 90 200
With the tax, the new equilibrium price and quantity are P = 58; Q = 84
With tax the supplier receives the new equilibrium price, less tax
P
P = 10 + 0.5Q
E1
58 The supplier receives
55 E0
Producer/Supplier price 52 (Pe tax) = (58 6) = 52
P = 100 - 0.5Q
0 Q
0 84 90 200
P
The tax is 6 per unit. with tax : P = 16 + 0.5Q
So the consumer pays 110
P = 10 + 0.5Q
E1
After tax: consumer price 58
55 E0
52
No tax: consumer price
P = 100 - 0.5Q
0 Q
0 84 90 200
Figure 3.8 Goods market equilibrium and taxes
E1
58
No tax: producer price 55 E0
52
0 Q
0 84 90 200
Figure 3.8 Goods market equilibrium and taxes