3. The widget industry is perfectly competitive. Currently, the price of widgets is $10 and

10,000 widgets are sold per year. Economists have estimated that the elasticity of demand

for widgets is -0.5 and the elasticity of supply is 1.5.

(a) The government has decided to raise $12,500 per year by imposing a per unit excise

tax on widgets. What must be the size of the excise tax in order for the government to

achieve its goal?

(b) Calculate the excess burden of the tax from part (a).