1. (30) Let the demand and supply for rental cars in Dallas be defined as (price is a daily rate):

Demand: P = 50 - .02Q [or Q = - 50P + 2500, if you prefer]

Supply: P = 10 + .04Q [or Q = 25P - 250, if you prefer]

1. Find the equilibrium price and quantity for this market. Graph demand and supply, noting the relevant intercepts and the equilibrium P and Q.

1. Assume a $10 sales tax is imposed on car rentals in Dallas. The demanders have the legal responsibility to pay the $10 tax. Modify the above equations as necessary to reflect the policy. What do you estimate will be the new equilibrium quantity? Also, list the post-tax price paid by demanders and the post-tax price received by suppliers? Indicate your answers on the graph above.

1. What fraction of the economic burden of the tax is borne by demanders? By suppliers? Explain your answer.

1. (30) The market for hybrid cars in Denton can be described by the following supply and demand equations:

D: P = 100,000 - 2,000Q

S: P = 10,000 + 500Q

1. Find the equilibrium price and quantity for this market. Graph demand and supply, noting the relevant intercepts and the equilibrium P and Q.

1. The city council has decided to help in the fight against global warming by subsidizing hybrids. A $7,500 per unit subsidy would be given to each supplier. Modify the above equations as necessary to reflect the policy. What do you estimate will be the new equilibrium quantity? Also, list the post-subsidy price paid by consumers and the post-subsidy price received by suppliers? Indicate your answers on the graph above.

1. How much ofthe economic benefit of the subsidy will go to consumers and how much to suppliers? Explain your answer.

3. (8) Say the demand of gasoline is perfectly inelastic (vertical). How would an excise tax on gasoline affect the market equilibrium price and quantity? Will the suppliers bear the entire tax burden?