Group+2+Taxes


 * Group 2: Taxes**

The supply of beef in the United States is defined by the equation: math P = 5 + 2Q_{S} math while the demand is defined by the equation: math P = 20 - \frac{1}{2}Q_{D} math

Part 1: Graph the Supply and Demand of Beef produced in the United States

Question 1: What is the equilibrium price and quantity in the beef market?
 * QS || Price || QD || Price ||
 * 0 || $5.00 || 0 || $20.00 ||
 * 1 || $7.00 || 1 || $19.50 ||
 * 2 || $9.00 || 2 || $19.00 ||
 * 3 || $11.00 || 3 || $18.50 ||
 * 4 || $13.00 || 4 || $18.00 ||
 * 5 || $15.00 || 5 || $17.50 ||
 * 6 || $17.00 || 6 || $17.00 ||
 * 7 || $19.00 || 7 || $16.50 ||
 * 8 || $21.00 || 8 || $16.00 ||
 * 9 || $23.00 || 9 || $15.50 ||
 * 10 || $25.00 || 10 || $15.00 ||

 The equilibrium price in the beef market is $17, while the equilibrium quantity is 6 pounds. This is because at a quantity of 7 pounds, the market supply would provide 7 pounds of beef for $19, while the market demand would want 7 pounds of beef for only $16.50, therefore, the market would produce a surplus of beef. Because there is a surplus, suppliers would naturally tend to reduce their price so consumers could purchase the beef at the market equilibrium of 6 pounds at $17 dollars. Question 2: What is the value of consumer surplus at the current market equilibrium?

 The consumer surplus at the current market equilibrium is $9. I calculated this by first drawing the consumer surplus and then the producer surplus. After finding that the distance between $20, the maximum price, and $17, the equilibrium price, to be $3, I then calculated the area of the triangle between $20 and $17 dollars by multiplying 6 (Q) x 3 (P)/2 = $9. I also found this by taking the producer surplus, which was $36, and then subtracting that from the total surplus, which was $45, to get $9.

 Part 2: Graph the equilibrium of a $5.00 tax on all sales of beef

 Question 1: What is the new equilibrium quantity of beef sold on the market.

The new equilibrium quantity of beef sold is 6 pounds. Question 2: What price do consumers have to pay for beef? What price do producers earn for their beef?

With the tax, consumers have to pay $17 dollars, and the producers earn only $13.50 of that $17. Question 3: What is the elasticity of demand between the original price of beef and the new price of beef? What about the elasticity of supply? 18.5-17=1.5/17=.09 6-4=2:4=0.5 .09/.5=.18 answer for demanded

13.5-17=3.5/17=.21 6-4=2:4=0.5 .21/.5=.42 answer for supplied

Question 4: How do the elasticity of supply and demand relate to the deadweight loss associated with the tax? The elasticity of supply and demand relates to the dead weight loss with the tax. The dead weight loss cannot happen unless an item is taxed. The dead weight loss is a response to the tax. The elasticity of supply and demand is very similar in that it also is a response of the quantity demanded or quantity supplied.