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1. (32 points) The market demand function is D(Pa) = 160-2P, and the market supply function is S(P.) = P. - 14, where Pa and
1. (32 points) The market demand function is D(Pa) = 160-2P, and the market supply function is S(P.) = P. - 14, where Pa and P, are the prices paid by the consumers and received by the producers respectively. Also, D(Pa) and S(P.) give the quantities demanded and supplied, respectively. a. Find the market equilibrium (no-tax policy). (6 points)| b. Suppose that the supplier is required to pay a per unit tax of t = $6. Draw a graph to show this change in policy compared to the no-tax policy. Find the equilibrium quantity and prices Pa and P.. How much of the tax is passed on to the consumers? (8 points) c. Suppose now that the demander is required to pay a per unit tax of t = $6 instead of the supplier. Draw a graph to show this change in policy compared to the no- tax policy. Find the equilibrium quantity and prices Pa and P.. Compare your answers with part (b). (8 points) d. Calculate the change in consumer surplus, the change in producer surplus, the tax revenue, and the deadweight loss (DWL) as a result of the tax policy. (10 points)
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