Suppose the demand curve for pizza can be represented by equation Qd=20-2P, where Qd
is
the quantity demanded and P is the price. The supply curve for pizza can be represented by
the equation Qs=P-1, where Qs
is the quantity supplied.
a) What are the equilibrium price and quantity in the pizza market? (2 marks)
b) Suppose the government impose a $3 tax per pizza. How much more will consumers now
pay for pizza? (Hint: the prices in the demand and supply equations are no longer equal.
The price that determines quantity demanded now equals the price that determines
quantity supplied plus $3).
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