Suppose you are an aide to a U.S.Senator who is concerned about the impact of a recently proposed excise tax on the welfare of her constituents. You describeed to the Senator that one way of measuring the impact on her constituents is to determine how the tax change affects the level of consumer surplus enjoyed by the constituents. Based on your arguments, you are given the go-ahead to conduct a formal analysis, and obtain the following estimates of demand and supply:
Qd= 500- 5P and QS = 2P - 60.
a. Graph the supply and demand curves.
b. What are the equilibrium quantity and equilibrium price?
c. If a $2 excise tax is levied on his good, what will happen to the equilibrium price and quantity?
d.What will the consumer surplus be before and after the tax?