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see how you arrived at your answers so that I can understand your thought process and give partial credit if warranted. You are welcome and
see how you arrived at your answers so that I can understand your thought process and give partial credit if warranted. You are welcome and encouraged to work in groups as long as the work you hand in is your own! Do not hesitate to stop by my office hours if you have any questions or merely wish to talk through any aspect of the problems. Good luck! 1. Consider a market described by the following equations: Qa = a + BP Qs = 4 + up Where a, B, 4 and u are parameters. Note that B must be less than zero and the other parameters are positive. Answer the following questions. a. Solve for the equilibrium price and quantity. b. Now suppose a specific tax, T > 0, is imposed on this market that has to be paid to the government by buyers. Show in a clearly labeled supply and demand diagram what happens to the equilibrium price received by sellers, and the effective price paid by buyers. Label the price received by sellers by P" (t) and the price paid by buyers by P" (T)+T. c. Set up the equilibrium condition, plugging P*(T)+t into the demand function side, and P*(T) into the supply function side. Solve for the price paid by buyers, the price received by sellers, and the after tax equilibrium quantity in terms of the parameters of the model and the tax amount T. d. Using calculus and the equation that you found for Pr in part b, find an expression for the tax incidence on the sellers and determine its sign. e. Note that at equilibrium, - = B and Sus = dap: - H. Transform the right hand side of the equation you found in part d to be in terms of elasticities of demand and supply at equilibrium, by multiplying top and bottom by . How does the tax incidence on sellers depend on the price elasticity of supply? Verify your result with a supply and demand diagram that varies the elasticity of supply at equilibrium. 2. Suppose that the utility function U (e, s) = e + 4s? describes Elle's preferences over two goods: Eggo brand waffles (e) and sodas (s). For the following, think of Eggos as the good graphed on the horizontal axis
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