Let demand for notebook paper be given by Q = 50 5P, while supply is given

by Q = 5P.

a) Calculate consumer surplus (CS), producer surplus (PS), and welfare

generated by this market.

b) If demand were instead Q = 75 10P, so that initial equilibrium price P

and quantity Q were unchanged from part a), would the loss of CS be higher or

lower if the price increases? Use a graph to support your argument. (Hint: you

shouldn't need to do calculations to answer this question.)

c) Suppose that there are no fixed costs in the notebook paper industry.

Derive industry profit.

d) A tax of $0.20 (20 cents) per notebook paper packet is implemented. Using

demand from part a), calculate CS, PS, tax revenue (TR), and total welfare.

Explain intuitively any change in welfare. (Assume fractional quantities are

possible in your analysis.)