Consider a perfectly competitive market described by the supply function P=20+0.3Q and demand function P=120-0.2Q. If a specific tax of t=$10 per unit of output sold is imposed upon sellers, then:

In a perfectly competitive market, the equilibrium occurs where the quantity supplied equals the quantity demanded, which can be found by setting the supply equation equal to the demand equation. With the introduction of a specific tax on sellers, the supply function effectively shifts upward by the amount of the tax, altering the equilibrium price and quantity.

When the tax of $10 per unit is imposed on sellers, the new supply function can be represented as P = 20 + 0.3Q + 10, or P = 30 + 0.3Q. To find the new equilibrium, you would set this adjusted supply equation equal to the demand equation, P = 120 - 0.2Q. The resulting calculations reveal a new equilibrium price and quantity, both of which will be lower compared to the original equilibrium without the tax.

As a result of the tax, producer surplus and consumer surplus are affected. The reduction in quantity traded in the market due to the tax leads to deadweight loss, which represents the inefficiency introduced by the tax and results in a decrease in total economic surplus. The calculation of the deadweight loss will consider the reduction in transactions in the market, and it is estimated that this loss is significant, amounting to $190