Tax Incidence and Efficiency

The market demand for a product is Q = 230 - 5P, and the market supply is Q = -70 + 10P (where Q is quantity and P is price).

Questions:

1. What is equilibrium price and quantity in this market?

Equilibrium Price:

Equilibrium Quantity:

2. Enter a formula to calculate price elasticity of demand using the equilibrium price and quantity as the base values.

3. Enter a similar formula to calculate price elasticity of supply.

4. Suppose the government imposes a $1.50 tax per unit.

a. Use the values for price elasticity of demand and supply to calculate the tax burden on consumers relative to suppliers (or producers). (Note: The sign of your answer should be negative)

b. What is the actual tax burden on suppliers?

c. What is the actual tax burden on consumers?

d. Calculate the deadweight loss of the tax, using only the price elasticity of demand and supply, the per-unit tax, and equilibrium price and quantity.