Assume you are an aide to a U.S. Senator who is concerned about the impact of a recently proposed excise tax on the welfare of her constituents. You explained to the Senator that one way of measuring the impact on her constituents is to determine how the tax change affects the level of consumer surplus enjoyed by the constituents. You are given the go-ahead to conduct a formal analysis, and obtain the following estimates of demand and supply based on your arguments. Don't worry if the answers are infractions.
Qd = 500 - 5P and Qs = 3P - 60
1. Discuss how much tax revenue will be raised following the $2 tax?
2. Determine what will the producer surplus be after the tax?