Part B Using the functions below:

1. Calculate and graph Equilibrium Price (Pe) and Equilibrium Quantity (Qe). Graph supply and demand curves. Fully label the graph.
2. Add the tax to either consumers or producers*. Calculate the new Pe (which you can call the Pt) and Qe (Qt) with the tax, show both of the shifts in the graph

• Demand function: Qd = 140- 2.5P
• Supply function Qs = .5P + 98
• Tax = $12

*Hint: isolate P before adding the tax (demand function) or subtracting the tax (supply function). Then set the Demand Function equal to the Supply Function to find the new equilibria (Qe -> Qt,Pe -> Pt). You'll end up with the same Qt but different Pt's.

Notes:

• ignore the concept of elasticity. If you add the tax to D or subtract the tax from S the new Qt is the same (but the Pt is different. Why is it different?)
• for the shifts: perhaps review the documents below. Each function should shift when you add (D) or subtract (S) the tax
  • don't do the tax at the same time for both functions. D2 goes with S1 and D1 goes with S2