Suppose that the demand for a good is given by the inverse demand function: p =0 - 3q.
a. Plot the demand curve on a graph.
b. Compute the price at which 2 units of the good will be demanded.
c. Suppose that a unit tax of 1 is introduced. Plot the new demand curve.
d. What is the price at which 2 units will be demanded after the tax is imposed?
e. If supply is perfectly elastic at the price of 5, what is the equilibrium quantity of the good before the tax is imposed? What is the effect of the tax on price and quantity? Explain.
f. How much revenue is generated by this tax?
g. Who bears the burden of this tax?