## Calculating impact of a tax - example

Assume a linear demand function of the form:

**Qd = 120 - 5P**

and a linear supply curve of the form:

**Qs = -30 + 10P**

Using these demand and supply functions, answer the following questions. Once you have had a go at the questions, follow the link below to compare your answers.

- Calculate the quantities demanded and supplied for prices from $3 - $15.
- Plot these figures to give the demand and supply curves for the product (use graph paper)

- Calculate the equilibrium price and output and plot on graph
- Indicate the consumer and producer surplus before the tax
(using colour may help) - I would just outline the relevant areas
rather than shading them

- If the government imposes a specific tax per unit of $3, plot the new supply curve on the original supply and demand diagram.
- Use the diagram to find out the new equilibrium price and quantity.
- Calculate the tax revenue received by the government, indicate it on your diagram

- Calculate the revenue received by the firms:
- before the tax
- after the tax

- Calculate consumer expenditure:
- before the tax
- after the tax

- Outline consumer surplus after the tax, by how much has CS changed? How much is transferred to producers? How much to goverment?

- Outline producer surplus after the tax, by how much has it changed?

- State the effects of the tax,