Book price and quantity effects

Reference no: EM1317045

Assume that the supply of a best-selling book at local book stores throughout the United States is a function price such that:

Q₅=-5+5P (Supply)

Where Q is the number of books sold (in thousands) and P is the book price. Given tha availability of this book on amazon.com for $20, demand is perfectly elastic at a price of $20.

Derive the second book supply curve based upon the assumption local sales are subject to an 8% sales tax that is not imposed on internet sales. Calculate the book price and quantity effects of the local 8% sales tax. With perfectly elastic demand, who pays the economic burden of such a tax?

Reference no: EM1317045

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