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Question: a initial economy 4 pointsandnbspthe demand and the supply...

Question details

A - Initial Economy (4 points):


The demand and the supply for pork meat[1] in Meatistan are given by


QD = 9 – 0.25P, and

QS = 2P


We assume that the market for pork meat is perfectly competitive.


1: Compute the equilibrium price PE and quantity QE.

2: Plot on a graph: the demand, the supply, and the equilibrium price and quantity.       


B - Tax on Consumption (14 points):


3: Assume that the Government puts a tax of 10$ per kg on all pork meat consumption.


a)     Graphically show the effect of the consumption tax on the equilibrium price and quantity.

b)     Compute the price paid by consumers PD, the price received by producers PS, and the quantity traded QT, after the Government’s tax has been instituted.

c)     Discuss the welfare implication of the tax.

d)     Explain who bears most of the tax burden, the consumers or the suppliers? Why?

4: For this question only, we assume that chicken meat is a substitute for pork meat. Discuss how the chicken meat market’s equilibrium price and quantity are affected by the Government’s tax on pork.                                                                                 

[1] Both demand and supply are expressed in kilograms (kg), and all prices are in dollars ($).

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