3. (20 points) Consider the followingdemand and supply equations: QD = 20 – 5P QS = 2p – 2 where Q i

3.  (20 points)  Consider the followingdemand and supply equations: QD = 20 ‐ 5P QS = 2p ‐ 2 where Q is in thousands and P is in dollars. a.  Re‐write each equation in graphical (y = mx+b)form. b.  Graph the two equations on the same graph (neednot be to scale). c.  Calculate the market equilibrium price andquantity. d.  Calculate the elasticity of demand and theelasticity of supply at the price found in part (c).  Ifa tax were levied in this market, which side of the market do youpredict would pay the most tax? 4.  (15 points)  Consider the competitivemarket where demand is P = 20 ‐ .25Q and supply is P = 3 + .5Q.a.  Analyze the effects on the equilibrium quantity,producer price Pn, and consumer price Pg of a $1 per unit tax onproducers.  What is the tax revenue?b.  Analyze the effects on the equilibrium quantity,producer price Pn, and consumer price Pg of a 20% ad valorem tax onproducers.  What is the tax revenue?c.  Analyze the effects on the equilibrium quantity,producer price Pn, and consumer price Pg of a $1 per unit subsidyto consumers.  What is the cost to the government? 5. (15 points) In Chapter 3 of Taxing Ourselves, Slemrod andBakija explain that economists have two principles for determiningthe fair distribution of the tax burden across income classes. a. What are these two principles? Explain each of them in yourown words. b. In your opinion, how does Margaret Thatcher’s poll tax stackup using these two principles? c. Consider Table 3.1. Summarize the evidence on the degree towhich U.S. federal taxes and transfers have affected incomeinequality. . . .

 

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