Question

A.1. a. Suppose the demand function P = 10 - Q, and the supply function is:...

A.1. a. Suppose the demand function P = 10 - Q, and the supply function is: P = Q, where P is price and Q is quantity. Calculate the equilibrium price and quantity.

b. Suppose government imposes per unit tax of $2 on consumers. The new demand function becomes: P = 8 – Q, while the supply function remains: P = Q.

Calculate the new equilibrium price and quantity. c. Based on (b), calculate the consumer surplus, producer surplus, tax revenue, total surplus and deadweight loss under the tax rate in (b). Also explain your answers in (c) diagrammatically.

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