In: Economics
a) Equilibrium occurs when demand = supply
200 - P = 4P
5P = 200
P = 40
At this P = 40, Q = 160
b) At a tax of $4 on sellers, tax will be shared among both consumers as well as sellers which will fall in the ratio of (demand curve touching price axis - equilibrium price) to (equilibrium price - supply curve touching price axis) which is [(100 - 40) / (40 - 0]) = 1.5
Burden on consumers would be [1.5 / (1.5 + 1)] of total tax which is 60% totalling of 0.6 * 4 = $2.4 while burden on producer is [1 / (1 + 1.5)] which is 40% totaling of 0.4 * 4 = 1.6
Price seller receive falls to $38.4 while price buyer pay rises to $42.4
c) Producer surplus post tax is area of portion D whose sum is (1/2) (153.6 - 0) (38.4 - 0) = 2,949.12
Deadweight loss is area of portion E + F whose sum is area of portion (1/2) (160 - 153.6) (42.4 - 38.4) = 12.8