Author:
Christine Farr

Consider the fictitious good Derp. The demand for Derp is Q = 1200 – 2P. Suppose the supply of Derp is given by Q = –600 +2P.What is the equilibrium price of Derp? What is the equilibrium quantity of Derp? What is the price elasticity of demand at the equilibrium price and quantity? 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 $50 per Derp is levied on the consumers.What price will sellers receive after the tax is levied? What price will consumers pay after the tax is levied? What percent of the tax will be paid by the consumers of Derp? (give an answer between 0 and 100)What percent of the tax will be paid by the suppliers of Derp? (give an answer between 0 and 100)How many Derps will be sold after the tax is imposed? How much consumer surplus do consumers get after the tax? What is the deadweight loss created by this tax?

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