Question: consider a market described by the following equations where y...

Consider a market described by the following equations:

Where Y denotes income and

,

휑

, and

휇

are parameters.

Note that

훽

must be less than zero

and the

other parameters are positive

.

Answer the following questions.

a.

Solve

for the equilibrium price and

quantity.

b.

Now suppose a specific tax,

휏

>

0

, is imposed on this market that has to be paid to the government by

suppliers. How can you represent the

new

price

paid by buyers

and the

new

price paid by sellers? S

olve

for the price paid by

buyers, the price paid by sellers, and the after tax equilibrium quantity.

c.

Now

suppose the same tax from part (b) is changed so that it must be paid to the government by

buyers.

How can you represent the

new

price paid by buyers and the

new

price paid by sellers? Solve for

the price paid by buyers, the price paid by sellers, and the after ta

x equilibrium quantity.

d.

Compare your answers to parts (b)

and (c). Provide a brief explanation (no more than 3 sentences) for

your results. Note your answer will be related to the logic of problem 2 part (d), you might want to work

through that problem before you answer this