# These next five problems consider tax incidence. Suppose the market supply and demand for guitars in Happy Valley are given by: Demand: P = 300 -…

These next five problems consider tax incidence. Suppose the market supply and demand for guitars in Happy Valley are given by:

Demand: P = 300 – (1/2)Q

Supply: P = 100 + (1/3)Q

What is the equilibrium price and quantity of the product?

A – P* = 120, Q* = 1200

B – P* = 180, Q* = 240

C – P* = 60, Q* = 480

D – P* = 225, Q* = 150

E – none of the above

What is the price elasticity of demand at the equilibrium price?

A – Elasticity = -1

B – Elasticity = -2

C – Elasticity = -0.5

D – Elasticity = -0.666

E – none of the above

For the next three questions, assume there is \$20 per unit tax levied on the consumers of guitars. What price will buyers pay after the tax is imposed?

A – \$192

B – \$200

C – \$160

D – \$190

E – none of the above

What is the quantity of the good that will be sold after the tax is imposed?

A – 196

B – 210

C – 224

D – 216

E – none of the above

What is the deadweight loss created by the tax?

A – DWL = \$360

B – DWL = \$120

C – DWL = \$240

D – DWL = \$480

E – none of the above