1. Elasticities

Consider the following supply and demand functions

qD = 16 - 4p

qS = -2 + 5p

2. Market Regulation

Using the supply and demand functions from problem 1, suppose a price ceiling of p = 1

were implemented.

a) How much is supplied to the market and how much is demanded?

b) What is the excess demand?

c) Calculate the consumer surplus, producer surplus, and welfare level without the price

ceiling.

d) Calculate the consumer surplus, producer surplus, welfare level, and dead weight loss with

this price ceiling.

e) What if the price ceiling were p = 5? How would our results change?

3. Taxes

Using the supply and demand functions from problem 1, suppose a per unit tax of 2 were

charged to the buyer.

a) How much does the buyer pay?

b) How much does the seller receive?

c) What is the equilibrium quantity?

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d) How much tax revenue is generated?

e) How much tax burden do the buyer and seller each bear?

f) Calculate the consumer surplus, producer surplus, welfare level, and dead weight loss with

this tax.

g) Suppose the per unit tax were charged to the seller. How would our results change?