There is currently a thriving, unregulated market in Smartphone protective cases. The supply and demand equations for this market is given below:
QD = 5000 - 2P
QS = -600 + 12P
The government decides to tax sellers of this product by imposing a $100 tax.
a) Represent the equilibrium price and quantity on a demand and supply diagram.
b) Calculate the consumer and producer surplus before the tax.
c) How is this proposed tax going to affect the market for Smartphone cases - that is, how will it affect the price of the cases and the amount of cases that are sold? Illustrate on the same diagram in part a.
d) Considering that the government will earn revenue, overall, do you think that the society benefits from such a move? Explain. (3 marks)
e) Calculate the consumer and producer surplus after the tax.
f) Calculate the deadweight loss of the tax.