Suppose that a market is described by the following supply and demand equations:

2 300 S

D 5

5 2 Q P Q P

a. Solve for the equilibrium price and the equilibrium quantity.

b. Suppose that a tax of T is placed on buyers, so the new demand equation is QD 5 300 2 (P 1T).

Solve for the new equilibrium. What happens to the price received by sellers, the price paid by buyers, and the quantity sold?

c. Tax revenue is T 3 Q. Use your answer from part

(b) to solve for tax revenue as a function of T.

Graph this relationship for T between 0 and 300.

d. The deadweight loss of a tax is the area of the triangle between the supply and demand curves.

Recalling that the area of a triangle is ½ 3 base 3 height, solve for deadweight loss as a function of T. Graph this relationship for T between 0 and