1. Consider a competitive market with a demand curve given by P = 90 - 2QD and a supply curve given by P = Qs.
(a) Solve for the perfectly competitive market equilibrium price and quantity. Show your work. Draw the demand and supply curves on a graph and label your equi- librium price and quantity.
(b) Now suppose that the government imposes a tax of $9/unit on the good. The tax is charged by the firms and submitted by them to the government. Solve for the new equilibrium quantity, the price paid by consumers and the price received by firms. Illustrate your solution on your graph. Show all work.
(c) By how much do producer surplus and consumer surplus change as a result of the tax? What is the government revenue? What is the deadweight loss? Show your work and explain your answer. Identify these areas on your graph.
