Suppose that in the market for soda beverages demand is QD=90-20P and supply is QS=30P-10.

a. Write the expression for the inverse demand and inverse supply and plot the curves in a demand and supply graph.

b. Find the equilibrium price and the equilibrium quantity and illustrate them in your diagram.

Sweetened beverages contribute to the over consumption of high-fructose corn syrup with negative consequences for public

health. In an attempt to contain consumption of sweetened beverages, the local government is considering the introduction of

a $1 per bottle tax on soda. The tax would be collected from sellers who would try to pass it on to shoppers via higher prices.

This is what is called a seller tax.

c. Using the calculus based comparative statics formulas, evaluate how the new tax would affect the gross price (buyer price)

and the net price (seller price) of soda.

d. In your diagram, illustrate the effect of the soda tax on the supply curve, on the equilibrium price, and on the

equilibrium quantity.

Suppose instead that the tax was collected from buyers on top of the market price (a buyer tax) and that the tax was only 50%

salient.

f. Using the calculus based comparative statics formulas, evaluate how the tax would affect the gross price and the net price in this case.

g. Illustrate your findings in a diagram