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(30 points) Suppose that there are three consumers in the market for a certain good. Two (of the three) consumers are identical and each has a demand function given by Di(p) = 60 -1/4p, where i = 1, 2. The third consumer has a demand function given byDj(p) = 40 -1/4p. The aggregate supply function is given by S(p) = 5/4p -20.

(a) Find the aggregate demand function for this market and show it graphically (include x and y intercepts and the kink point).

No-tax policy:

(b) Solve for the market equilibrium quantity and price, and calculate the elasticity of demand at the equilibrium point. Is the demand elastic or inelastic? Justify your answer.

Tax policy:

(c) Suppose the government imposes a t = $4 per unit tax for this good on the suppliers. Present graphically the eect of the tax policy.

(d) Solve for the new equilibrium quantity, price for the consumers and price for the suppliers. What is the tax incidence?

(e) Calculate the tax revenue and the deadweight loss (DWL) as a result of the tax policy.