In order to partially address the problem of obesity, suppose that the U.S. government is considering a tax on chocolate! Assume that before the tax, the market for chocolate is perfectly competitive and can be represented by: QD = 5000 – 25P, and QS = 200P – 50.

a. What is the market equilibrium price and quantity?

b. Assume that the government imposes a $5 per unit tax. What is the new equilibrium quantity? What price do the suppliers receive in equilibrium? What price do the consumers pay in equilibrium?

c. What is the tax revenue that the government receives? What is the tax burden for consumers (in dollars)? What is the tax burden for producers (in dollars)?

d. In this price range, which party (consumers or producers) has the more elastic price elasticity? Explain your answer.

e. Show the tax burdens for consumers and producers in a graph, including the before and after tax equilibriums.