intermediate microeconomics

2. 25 points Consider the market for oranges (0) and bananas (6). The market demand functions for o and b are given by: po(Q.) po(Q) 30 - 3.Q. 15 - Qb The supply of oranges is perfectly elastic at the price po = 15 and the supply of banans is perfectly elastic at the price po = 10. = (a) What is the equilibrium quantities and prices on these markets? What are the consumers' surpluses? (b) Assume that a tax is imposed on both goods as a percentage mark- up on the price; the tax is paid by the producer/ seller. The tax rate is equal to t = 0.10 (which in this case implies that the price to consumers increases to p(1 + t), i.e., the producers' price is un- changed). How do prices, equilibrium quantities and consumers' sur- pluses change? How big are the tax-revenues? (c) What is the total dead-weight loss of the tax. Explain first what a dead-weight loss is. (d) What is the price-elasticity of demand between the prices and quan- tities before and after tax? (For both goods.) (e) Assume that the tax-revenue that the state gets is equal to what it needs. The question though, is if this revenue has been raised in the best possible way? I.e., is it optimal to have the same tax-rate on both goods? If different tax rates on o and b can lead to a lower total dead-weight loss for the same tax-revenue, this is not the case. Discuss how the tax rates should be changed (which one should be increased and which should be decreased). Try to prove your point with a small example and/or with the help of diagrams