Last year, Berkeley, CA passed a tax on yoga classes of $4 per yoga class. Suppose that the pre-tax demand for yoga classes is QD = 2000 – 100P, and that the pre-tax supply of yoga classes is QS = 300P –200.
(a) Calculate the initial equilibrium price and quantity.
(b) Calculate the elasticity of demand (ED) and elasticity of supply (ES) using calculus at the initial equilibrium price and quantity from Part (a).
(c) Use your answer from Part (b) to calculate the tax borne by consumers, as a percentage of the overalltax.
(d) Use your answer from Part (b) to calculate the tax borne by firms, as a percentage of the overall tax.
(e) Determine the price that buyers will pay for yoga classes after the tax (PB). Determine the price thatfirms will receive for yoga classes after the tax (PS).
(f) Calculate the deadweight loss (DWL) associated with this tax.