(a) Consider a good for which the supply function is S(p) = 2000(p−4) (for prices 4 and above) and the demand function is D(p) = 1000(10 − p) . What are the equilibrium price and quantity for this market? If a tax of $0.30 is imposed on the good, what are the new equilibrium price and quantity? What is the loss in consumer surplus, and what is the loss in producer surplus? What is the relative burden of the tax on consumers, relative to its total burden on producers and consumers? How much is the deadweight loss from the tax?

You can answer these questions directly by solving for the equilibrium price and quantity with and without the tax and computing various surpluses; or you can try the formulae given in the text. (I suggest you do the former, although it would be ideal if you did both, just to check that the formulas really work.) (b)

Redo part a but for a firm with market power whose marginal cost function is MC(x) = 4 + x/2000. (Demand doesn’t change.) To help you out with this: The firm’s total-cost function is TC(x) = 2000 + 4x + x2/4000.