Question

In the market for beer, use the demand and supply functions below to answer the questions:

Qd = 88 - 1.2 P
Qs = - 28 + 2.2 P

1. At equilibrium, what is the value of elasticity of demand (absolute value)?

2. At equilibrium, what is the value of elasticity of supply?

3. The share of the tax borne by the consumer is equal to?

4. The share of the tax borne by the producer is equal to?

If the government imposes a tax of $0.5 on each glass of beer sold, what share of the tax will be paid by buyers, and what share will be paid by sellers?

5. The consumers will pay $ ____________ in tax per glass of beer.

6. The producers will pay $ ____________ in tax per glass of beer.

Answer 1