Consider the national market for electric school buses with the demand given by Qd=600-2P and supply given by Qs=3P-150. (Note: the price is in thousands of US$ and quantity is in thousands of buses).

a( Calculate the equilibrium price and quantity and draw a graph to represent them. (Label clearly everything on the graph to obtain maximum points)

b)Calculate the Total Surplus at the equilibrium point and provide a succinct argument as to why the equilibrium represents an efficient allocation of resources in this market.

c)Consider now that the price of electric school buses increases by $60 (thousands) above the equilibrium price due to a tax on e-waste containing products. Will there be any efficiency losses (i.e. decrease in Total Surplus)? Calculate the new Total Surplus and find the Deadweight Loss due to this tax.

d)Compute the Leakage that occurs after the tax in c is implemented (hint: use the DWL only from the consumer side). What is the significance of this number? Why is it important from a tax policy perspective?

e) Price Elasticity of Demand (Ed or PED or _d)

f)Compute the price elasticity of demand (Ed) for a price change of $60 (P=$60).

g)Explain the meaning of the price elasticity of demand (Ed=whatever number you obtained when you computed it) for the electric school buses.

h)Is the demand for these buses price elastic or price inelastic?

i)Compute the change in Consumer Surplus (CS)using the price elasticity of demand computed in 5 (use a variation of eq. 3.4 in textbook, this one is for a price decrease, you are dealing with a price increase).

j)Compute the DWL again using the elasticity instead of demand equations (eq. 3.6 in textbook).

k)The smaller the DWL is compared to the tax revenue the__________the leakage is

• Smaller
• Larger

L) Which type of demand creates more deadweight loss? Elastic or inelastic? Why? Use graphs or words to explain.