Question: Consider the demand function Q=105-3p+4m, where p is price and m is money income. a) Calculate the income elasticity of demand. It will be a

Consider the demand function Q=105-3p+4m, where p is price and m is money income.

a) Calculate the income elasticity of demand. It will be a function of variables and constants. Do not make any substitutions for p or m.

b) Now, assume m=12. Calculate the price elasticity of demand at p=5.

c) Suppose the government implements a unit tax of $2.50 on this good. Find the change in consumer price after this tax increase (i.e., find ∆p). Assume that η=2.

d) Calculate the incidence of the unit tax on consumers. Who is hurt more by the tax? Producers or consumers? Why? Explain in words and appeal to elasticities.

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