Problem
1. In the preceding question, suppose that we give buyers the subsidy instead of giving it to the suppliers. By how much would the demand curve have to shift upward in order that the socially optimal quantity is realized?
2. The demand and supply curves in a regular market (no externalities) are given by P = 42-Q and P = 0.2Q.
(a) Solve for the equilibrium price and quantity.
(b) A percentage tax of 100% is now levied on each unit supplied. Hence the form of the new supply curve P = 0.4Q. Find the new market price and quantity.
(c) How much per unit is the supplier paid?
(d) Compute the producer and consumer surpluses after the imposition of the tax and also the DWL.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.