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