Compute the competitive equilibrium price and quantity/Managerial Economics
Assume that the demand curve for sporting guns is described by QD = 100 – 2p and the supply is described by QS = -20 + p (QD and QS are in millions, p is in $).
a. Compute the competitive equilibrium price and quantity. Draw a graph of a supply and demand curve and label it correctly. Compute the total value created in the market for sporting guns (Hint: total value = consumer surplus + producer surplus).
b. Suppose that the government views sporting guns as a luxury product and taxes the consumers $6 for each sporting gun they buy. Solve the new competitive equilibrium. What losses do consumers of sporting guns incur as a result of the tax? What losses, if any, do the producers of sporting guns incur?
