6.
a. The market for coats is perfectly competitive with marketsupply given by QS= 2500 + 40P and market demand given by QD givenby QD= 7500 – 10P. Solve for the equilibrium values of price andquantity. Calculate the values of elasticity of demand andelasticity of supply at the equilibrium.
b. With reference to question 6a, the government imposes a taxof 20% on coats. Calculate the new equilibrium prices and quantityand explain how the burden of the tax is shared between consumersand producers. How much tax revenue is collected?
c. With reference to your answer for part b, suppose that thegovernment had imposed on the producers a license fee (a one timefixed payment) that generated the same revenue for the governmentas did the tax. What is the new equilibrium value of price andquantity. Explain the difference between the two answers.
