1. Assume that the supply of a best-selling book at local book stores throughout the United States is a function of price such that:

QS

= 50 + 5P

(Supply)

where Q is the number of books sold (in thousands) and P is the book price. Given the availability of this book on amazon.com for $20, demand is perfectly elastic at a price of $20.

A.

Derive the book supply curve where price is expressed as a function of output. Calculate the equilibrium level of output at amazon's price.

B.

Derive a second book supply curve based upon the assumption local sales are subject to an 8% sales tax that is not imposed on Internet sales. Calculate the equilibrium output after the 8% sales tax with amazon's price still at $20.