Consider a market with supply $Q_s(p) = 2p$ and demand $Q_D(p) = 1$. Consider a per unit tax $t = 0.5$.
(a) In the same diagram, draw the supply curve and the demand curve.
(b) Calculate the competitive equilibrium price $p^*$ and quantity $Q^*$ (in absence of the tax).
(c) Calculate the price paid by the consumer $p_D$, the price received by the producer $p_S$, and the equilibrium quantity $Q_t$ in presence of the tax $t = 0.5$.
(d) How is tax burden distributed between producer and consumer? Give an intuition for the distribution of the tax burden in terms of elasticity of demand and elasticity of supply.
