Suppose that the market for corn is characterized by many small farmers/firms who have no impact on the final price of corn. The market demand for corn has been estimated to be
QD=50-P
where P is the price per ton of corn and Q is the quantity of corn (in tons). The market supply curve is
QS=5+2P.
a. Determine the market’s equilibrium price and output.
b. Suppose that a tax of $6 per unit of corn is placed on the market. What is the new equilibrium price and output?
c. Graph the original (i.e. without the tax) and new (i.e. with the tax) equilibria in the same supply and demand figure. Show the change in consumer surplus, change in producer surplus, and deadweight loss associated with the introduction of the tax.
d. Do the consumers or producers pay more of this tax? Why?
e. What is the deadweight loss of the tax?