3. Consider the following supply and demand function, QD = 65 - 2P
and Qs = 1.5P - 5, and assume a $17.50 excise tax is collected from
consumers.
(a) Calculate price and quantity in this market before (Pā and Qā)
and after the tax (P2 and Q2).
(b) What is the amount of tax revenue that is collected from con-
sumers, producers and in total?
(c) What is the relative tax burden of consumers and producers?
(d) Show how the elasticity of supply and demand determine the shar-
ing of the tax burden.
(e) What is the relative tax burden of producers and consumers if the
tax is collected from producers, instead?
