Instructions: 1. Please provide your solution, explanation and drawing for every single question, in the space provided under the question. 2. Please write clearly. If your answers are not readable, then it will have zero points. 3. Graphs: Please label the axes, lines, curves and areas correctly. Graphs with no labels will not receive any points.

Q.2. Suppose that supply is inelastic. Demand is normal and downward sloping. What is the economic incidence of a value tax placed on consumers? Illustrate this with an appropriate diagram.

a. Graph (i) market demand and supply, (ii) before tax equilibrium (0 , 0 ), and (iii) after tax equilibrium (1 , , )?

b. Show the tax revenue in the graph by using alphabetic letters at the corners of the appropriate area of tax revenue? c. Show the excess burden of the tax by using alphabetic letters at the corners of the appropriate area of the excess burden?