Demand for Rover dogwalking services in Harrisonburg is given by the following inverse
demand function:
pd(q) = 30 − 1/10 q,
while the supply of dogwalking services is given by the following inverse supply function:
ps(q) = 2/10 q,
where q denotes the number of dogwalks demanded or supplied.
(a) (6) What is the equilibrium price and quantity of dogwalks in Harrisonburg? How high are
consumer and producer surplus?
(b) (4) The City of Harrisonburg aims to increase government revenue by implementing a tax on
producers of $3 for every dog walked. What will be the result of this new tax on the equilibrium
price that consumers pay, the price producers receive, and the number of dogwalks that occur?
(c) (6) How much tax revenue will be generated as a result of this tax? What are consumer and
producer surplus after the tax is implemented?
(d) (2) How much dead weight loss does the tax generate?
(e) (10) For this part of the question, suppose that supply is perfectly inelastic at the original
equilibrium quantity. If the same $3 production tax is imposed, what happens to the equilibrium
price that consumers pay, the price producers receive, the number of dogs walked, the tax revenue
that is generated, and the deadweight loss that arises after the tax is implemented? You need
five separate answers for this part - no detailed math is necessary, but a picture might help. In
one sentence, summarize your results - don’t simply re-state them, but provide intuition.
