Assume that the market for gasoline is competitive and presently in equilibrium with a demand curve and a supply curve given by Qd=7-0.5P and Qs=0.25P-0.5, respectively (unit: $/liter). Examine the effect on this equilibrium (in the short-run) if the government imposes a new tax/unit (e.g., $6/liter) of gasoline on the firms. Draw a diagram in the space indicating the buyers' and sellers' shares of such a tax relative to the initial equilibrium. Be sure to clearly label your diagram. In particular:

a) Calculate the equilibrium price (P0) and quantity (Q0) in the gasoline industry before tax. Draw a diagram depicting this initial market equilibrium. b) Calculate the new equilibrium price (P1) and quantity (Q1) that would result from this taxation (e.g., $6/liter). Label this new equilibrium point in your diagram. c) Is the increase in equilibrium price higher or lower than the tax rate? Explain why. d) Calculate the Buyers' price (PBuyer) and Sellers' price (PSeller) after the taxation. Calculate the consumers' share (BS) and the producers' share (SS) of the tax. Label these prices and shares in your diagram e) Calculate the total revenue of the government from the tax. f) Calculate the deadweight loss (DWL) due to this taxation. In your diagram, show the DWL with shaded area

g) This question is to help you understand the statement we made in class: "The government can determine who (buyers or sellers) get to pay the tax, but it cannot determine who get to shoulder the tax." Consider the gasoline market with the same setup as before, except that the tax is imposed on the buyers, not the sellers. Redo all the questions from a) To f).