Suppose the market demand function is given by D(P_D) = 60 ? P_Dand S(P_S) = 2P_S.

(a) (Find the market equilibrium without taxes (that is, when P_D= P_S).

(b) Suppose now the supplier is required to play a per unit tax of t= 3. Draw a graph to show the change in the supply curve. Find the equilibrium quantity and prices, q^?, P_S^?, and P_D^?. How much of the per unit tax is passed on to the consumer? (Hint: in this case, the vertical axis is the demand price.)

(c) Suppose now the demanderis required to play a per unit tax of t= 3. Draw a graph to show the change in the demand curve. Find the equilibrium quantity and prices, q^?, P_S^?, and P_D^?. (Hint: in this case, the vertical axis is the supply price.) Compare your answers in parts b and c.

(d) Calculate the change in consumer’s surplus, change in producer’s surplus, tax revenue, and dead weight loss as a result of the policy change. Illustrate them on a graph.

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