The inverse supply and demand curves in a market are given by: PS = 2 p
Q
PD =
128
√
Q
where P and Q are prices and quantities, and subscripts S and D denote supply
and demand, respectively.
(a) [4 marks] Determine the equilibrium price and quantity in this market.
(b) [5 marks] Calculate Consumer Surplus at the equilibrium position.
(c) [8 marks] Calculate the price elasticity of demand at Q = 4 and Q = 16.
Interpret your answer.
Suppose that the government imposes an ad-valorem tax of 28% on the sales of
this good.
(e) [5 marks] Find the post-tax equilibrium quantity in this market.
(f) [8 marks] Determine the deadweight loss of the tax (round your answer to 2
decimal places).