Suppose market demand is given by 90 Q P d = − and market supply is given by 2 Q P S = . a) With no tax, what is the market equilibrium price and quantity? b) Now suppose the government imposes an excise tax of $9 per unit collected from the buyers. Find the equilibrium after the tax. c) Compute the following: (Hint: It may be helpful to draw a graph). Consumer surplus before the tax Producer surplus before the tax Consumer surplus after the tax Producer surplus after the tax Government tax revenue Deadweight loss of the tax d) Who bears the greater burden of the tax, consumers or producers? What does this tell you about the relative elasticities of supply and demand? e) Is the benefit to the government from imposing this tax greater than the loss of welfare to society? Explain.

Suppose market demand is given by 90 Q P d = − and market supply is given by 2 Q P S = .
a) With no tax, what is the market equilibrium price and quantity?
b) Now suppose the government imposes an excise tax of $9 per unit collected from the
buyers. Find the equilibrium after the tax.
c) Compute the following: (Hint: It may be helpful to draw a graph).
Consumer surplus before the tax
Producer surplus before the tax
Consumer surplus after the tax
Producer surplus after the tax
Government tax revenue
Deadweight loss of the tax
d) Who bears the greater burden of the tax, consumers or producers? What does this tell
you about the relative elasticities of supply and demand?
e) Is the benefit to the government from imposing this tax greater than the loss of welfare
to society? Explain.