(This problem uses some secondary school algebra and is challenging.) Suppose that a market is described by the following supply and demand equations:

QS ¼ 2P QD ¼ 300 ???? 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 ¼ 300 ???? ðP þ TÞ:

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 × Q. Use your answer to 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 1/2 × base × height, solve for deadweight loss as a function of T. Graph this relationship for T between 0 and