Purpose the market demand curve for a product is given by
Qd
=10 -0.5
P
and the market
supply curve is given by
Qs
= -2 +
P,
where P is in $ per unit.
a.Determine the equilibrium price and quantity in this market (2 marks)
b.Compute the price elasticity of demand and supply at the equilibrium in (a)
(2 marks)
c.Suppose that a tax of $3 per unit is imposed on the buyers. Find the new equilibrium
price and quantity after tax. (3 marks)
d.Calculate the incidence of the tax on the buyers and sellers? (2 marks)
e.Calculate the tax revenue collected by the govern
ment? (1 mark)
f.Calculate the deadweight loss associated with the $3 tax (