Question

a) Setting QD=QS

12-P=2P

12=3P

P = 12/3 = 4

Q = 12-4 = 8

CS =area AEB= 0.5*8*(12-4) = 32

PS =area BEC= 0.5*8*(4-0) = 16

b) When a tax of \$3 is introduced, the supply curve will shift upwards by \$3 at each price level

Consumers burden = (6-4)/3*100 = 66.67%

Producers burden = (4-3)/3*100 = 33.33%

2) New CS = area AFG = 0.5*6*(12-6) = 18

New PS = area IHC = 0.5*6*(3-0) = 9

Tax revenue = area GFHI = 6*3 = 18

DWL = area FEH = 0.5*(8-6)*(6-3) = 3

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