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1. Market Equilibrium and Deadweight Loss
a) Suppose that the supply and demand for apples are as follows:
QD = 100 - 3P
QS = 50 + 2P
The government now levies a $5 per unit tax on producers.
Draw the supply and demand curves in this market before and after the tax is levied and shade in the deadweight loss.
b) Solve for the initial market equilibrium (market price and quantity in the market). Show your work.
c) Solve for the market equilibrium (market price and quantity) after the tax is imposed. Show your work.
d) What is the incidence of this tax on consumers? On producers?
e) What is the deadweight loss from this tax?
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