Local e-cigarette Demand can be characterized by two types of people:

Low demanders each demanding Q_D^L= 10 - 2PX, and high demanders with Q_D^H= 10 - PXeach.

The market supply curve here is QS= 300PX, supplied by many many firms.

1. If there are 80 low demanders and 40 high demanders in this market, what will the equilibrium price and quantity be? (3)
2. Draw out the Demand and Supply curves and calculate the Consumer Surplus and Producer Surplus (2 marks)
3. The Government wants to reduce vaping so they introduce a $1.00 excise tax, what will be the new equilibrium price and quantity? How much tax revenue will this generate? Who pays the majority of the tax? Justify your answer. (3)
4. If instead of (c) they decided to put in a price floor of $3.20, would this be binding? Would it be more or less effective than the tax in (c)? Does it generate any revenue for the government? (2)