The market for packing boxes is described by the following equations:

Demand: P = 16 - Q

Supply: P = Q - 2

Where price is given in dollars per unit and quantity is given in thousands of units

1. What is the equilibrium price and quantity? (3 points)
2. Suppose the government imposes a tax of $2 per unit to reduce consumption and raise government revenues. (3 points)

• What will the new equilibrium quantity be? (1 point)
• What price will the buyer pay? (1 point)
• What amount per unit will the seller receive? (1 point)

1. The tax is removed and a subsidy of $0.5 per unit granted to packing boxes producers. (4 points)

• What will the equilibrium quantity be? (1 point)
• What price will the buyer pay? (1point)
• What amount per unit (including the subsidy) will the seller receive? (1 point)
• What will be the total cost to the government? (1 point)