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Problem 2 (25 pts) Explain your answers. The answers may not be integer. The demand function for widgets is q(p) = 120-2p and the supply
Problem 2 (25 pts) Explain your answers. The answers may not be integer. The demand function for widgets is q"(p) = 120-2p and the supply function is q (p) = 4p. (a) Find the equilibrium price p* and quantity q* and the price elasticity of demand at p* and q*. Now a proportional tax of 20% per unit sold is imposed, so p" = 1.2p where p" is the price that consumers pay after the tax and p' is the price producers receive. (b) What is the after-tax equilibrium quantity sold on the market? What is the price p" paid by consumers? What is the price p received by producers? Use a graph to illustrate your answers. (c) How much tax revenue does the government collect? How much of that is paid by the Consumers and how much by the producers? (d) What is the consumer surplus before and after the tax? The producer surplus? Indicate them on a graph and compute their dollar values. (e) Is there a deadweight loss associated with the tax? If yes, indicate it on your graph, compute its dollar value, and explain briefly why it occurs
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