A - Initial Economy (4 points):

The demand and the supply for pork meat[1] in Meatistan are given by

Q_D = 9 - 0.25P, and

Q_S = 2P

We assume that the market for pork meat is perfectly competitive.

1: Compute the equilibrium price P^E and quantity Q^E.

2: Plot on a graph: the demand, the supply, and the equilibrium price and quantity.

B - Tax on Consumption (14 points):

3: Assume that the Government puts a tax of 10$ per kg on all pork meat consumption.

a)Graphically show the effect of the consumption tax on the equilibrium price and quantity.

b)Compute the price paid by consumers P_D, the price received by producers P_S, and the quantity traded Q^T, after the Government's tax has been instituted.

c)Discuss the welfare implication of the tax.

d)Explain who bears most of the tax burden, the consumers or the suppliers? Why?

4: For this question only, we assume that chicken meat is a substitute for pork meat. Discuss how the chicken meat market's equilibrium price and quantity are affected by the Government's tax on pork.

C - Tax on Sales (12 points):

5: Assume that instead of taxing the meat consumption, the Government puts a tax of 10$ per kilo of pork meat sold.

a)Graphically show the effect of the consumption tax on the equilibrium price and quantity.

b)Compute the price paid by consumers P_D, the price received by producers P_S, and the quantity traded Q^T, after the Government's tax has been instituted.

c)Discuss the welfare implication of the tax.

d)Explain who bears most of the tax burden, the consumers or the suppliers? Why?

[1] Both demand and supply are expressed in kilograms (kg), and all prices are in dollars ($).