Suppose that the demand curve is given by the following: P = 10 Q. Moreover the supply curve is given by P = Q.

Suppose that the demand curve is given by the following: P = 10 − Q. Moreover the supply curve is given by P = Q.

a) Calculate the market equilibrium as well as the consumer, producer and total surpluses.

b) Suppose that the government now imposes a consumption tax equal to $1 per unit being bought and sold in the market. Calculate the new equilibrium as well as the consumer, producer and the total surpluses. What happens to the total surplus after the introduction of tax? Explain.

c) Suppose now that the demand curve is still given by the following: P = 10 − Q; however the supply curve changes to Q = 5. Calculate the new equilibrium as well as the consumer, producer and total surpluses. Moreover, suppose that the government now imposes a consumption tax equal to $1 per unit being bought and sold in the market. Calculate the new equilibrium as well as the consumer, producer and the total surpluses. What happens to the total surplus after the introduction of tax? Explain.

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