Suppose the market demand curve for beer is described by the equation Q^D_b = 600 − 15P_b, where Q^D_b is the number of cases of beer and P_b is the price. The supply curve is given by Q^D_b = 10P_b.
a. Calculate the elasticities of demand and supply at the equilibrium quantity.
b. Suppose the government introduces an excise tax of 15 percent per case of beer. Determine the excess burden of this tax using the formula in footnote 7 and the elasticities found in part (a).
c. Calculate the tax revenues and the average excess burden.