Question

The inverse demand for table salt is 𝒑 = 𝟐𝟎𝟎 , while the inverse supply of table salt is

𝒒𝒅 +𝟏

𝒑 = 𝟏𝟎 + 𝟐𝒒𝒔.

a. Find the equilibrium price of table salt before AND after the imposition of a 40% ad valorem tax on the

consumers of table salt. [2]

b. Describe the distribution of the burden (incidence) of this ad valorem tax between consumers and

producers. [2]

c. Find and interpret the price elasticity of supply (𝒆𝒔) at the after-tax equilibrium price and quantity. [2]

Answer 1

$$10+2qs=200$$

$$2qs=190$$

$$qs=95$$

$$1.4(10+2qs)=200$$

$$qs=66.4$$