These next five problems consider tax incidence. Suppose the market supply and demand for guitars in Happy Valley are given by:Demand: P = 1000 – 0.25QSupply: P = 200 + QWhat is the equilibrium price and quantity of the product?A) P* = 840, Q* = 640B) P* = 733.25, Q* = 1067C) P* = 760, Q* = 960D) P* = 800, Q* = 60015.What is the price elasticity of demand at the equilibrium price?A) Elasticity = -2B) Elasticity = -3.333C) Elasticity = -5.25D) Elasticity = -0.5E) none of the above16.For the next three questions, assume there is $10 per unit tax levied on the consumers of guitars. What price will buyers pay after the tax is imposed?A) $850B) $842C) $830D) $855E) none of the above17.What is the quantity of the good that will be sold after the tax is imposed?A) 630B) 640C) 626D) 632E) none of the above18.What is the deadweight loss created by the tax?A) DWL = $80B) DWL = $8C) DWL = $10D) DWL = $64E) none of the above
