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    Price elasticity of Demand – Problems

     Suppose demand is p = 20 – 2QD and supply is p = 2 + 2QS. The government enacts a $2 per unit tax. What is the post-tax equilibrium quantity? 

    SAMPLE ANSWER:

    P=20-2Qd
    P=2+2Qs
    Tax=$2/unit
    New Supply curve =
    P-2 = 2+2Qs
    So, equating both the demand and new supply curve,
    20-2Q=4+2Q
    So, 4Q=16
    So, Q = 4
    So,the post tax equilibrium quantity is 4 units

    1. Suppose demand is p = 20 – QD and supply is p = 2 + QS. The government enacts a $2 per unit tax. What is the deadweight loss of the tax
    2. Suppose demand is p = 10 – 2QD. What is the price elasticity of demand at p = $6 and QD = 2?  
    3. Suppose the price elasticity of demand is 2. What is the percent change in price that lowers demand by 30%? 

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