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(solution) Suppose you are hired by the Martin guitar company as an economic


Suppose you are hired by the Martin guitar company as an economic consultant. You estimate the demand for Martin guitars to be Q = 8,000-2P. Suppose the supply of Martin guitars is given by Q=-2000+3P.

1. What is the equilibrium price of Martin guitars?

2. What is the equilibrium quantity of Martin guitars?

3. What is the price elasticity of demand at the equilibrium price and quantity?

4. What is the price elasticity of supply at the equilibrium price and quantity?

 for the next seven questions, suppose a per unit excise tax of $40 per guitar is levied on the consumers.

5. What price will sellers receive after the tax is levied?

6. What price will consumers pay after the tax is levied?

7. What percent of the tax wil be paid by the consumers of martin guitars?

8. What percent of the tax wil be paid by the suppliers of martin guitars?

9. How many guitars will be sold after the tax is imposed?

10. How much consumer surplus do consumers get after the tax?

11. What is the deadweight loss created by this tax?

 


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