Suppose you have the following demand and supply schedules: Qd = 900-10p+2Y and Qs= -50+25P where Qd and Qs are quantity demanded and supplied, respectively, Y is average income (in 1000s) in the area and P is the price of the good.
a) Suppose Y=50. Find the equilibrium quantity and price. b) Find the amount of consumer surplus and producer surplus. c) If stores set an initial price of $25, how will the market adjust. Be specific about the process, not just the change in price. d) Now suppose a 10% income tax is imposed. What will happen to equilibrium price and quantity? e) How does the income tax affect consumer and producer surplus?