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Suppose the market demand and market supply curves are given by the following equations:
QD = 120 - 10P
QS = 20P
a. Draw a figure of supply and demand representing this market. Be sure to label the axes and intercepts. (Hint: Place P on the y-axis and Q on the x-axis. It might help to solve for P in terms of Q.)
b. What are the equilibrium price and equilibrium quantity in this market?
c. How much is consumer surplus at the market equilibrium?
d. How much is producer surplus at the market equilibrium?
e. Suppose that a tax of $3 is placed on buyers. This means the demand curve becomes QD = 120 - 10(P + T) where T =3. How much is consumer surplus after the tax is imposed? How much is producer surplus after the tax is imposed?
f. How much tax revenue is collected after the tax is imposed? What will be the deadweight loss from this tax?
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