Consider the national market for electric school buses with the
demand given by Qd=600-2P and supply given by Qs=3P-150. (Note:
the price is in thousands of US$ and quantity is in
thousands of buses).
- (10pts) Calculate the Total Surplus at the equilibrium point
and provide a succinct argument as to why the equilibrium
represents an efficient allocation of resources in this
market.
- (10pts) Consider now that the price of electric school buses
increases by $60 (thousands) above the equilibrium
price due to a tax on e-waste containing products. Will there be
any efficiency losses (i.e. decrease in Total Surplus)? Calculate
the new Total Surplus and find the Deadweight Loss due to this
tax.
- (10pts) Compute the Leakage that occurs after the tax in c is
implemented (hint: use the DWL only from the consumer side). What
is the significance of this number? Why is it important from a tax
policy perspective?