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The supply of candy is given by Qs = 20,000P where Qs is bags of candy supplied per year and P is the price per bag. The demand for candy is given by Qd = 150,000 – 30,000P

a. Assuming that candy is sold in a competitive market, what is the equilibrium price and quantity?

b. To discourage the consumption of candy, the government levies a tax on consumers in the amount of $1 per bag. What is the new equilibrium quantity?

c. What is the impact of the tax on welfare in this market?

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Vaishnavi Kanukurti
Vaishnavi KanukurtiLv10
28 Sep 2019

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