1.
SECTION 2 (25 POINTS)
A. Consider the market for iced lemon tea in Kajang. The demand and supply functions
are given as follows:
$D: p = \frac{12,000 - Q}{3,000}$
$S: p = \frac{Q + 462}{5,000}$
Where, $p$ is the price per liter in RM and $Q$ is the quantity in litres. A price tax, $t$, of
RM.50 per liter is imposed by the government on the drink.
Determine:
a. The after-tax market equilibrium.
(8 points)
b. The incidence of the tax.
(8 points)
c. The tax revenue.
(2 points)
d. The excess burden.
(2 points)
e. Discuss the effects of the tax on the market.
(5 points)
(Total: 25 points)
