Suppose that the demand equation: P = 10 - Q and supply equation: P = Q.
a. Calculate the equilibrium price and quantity.
b. Calculate the consumer surplus, producer surplus and total surplus at equilibrium.
c. Suppose the government imposes a tax of $2 for each unit bought. Derive the new equilibrium price that consumers pay, the price that firms receive, and quantity.
d. Calculate the deadweight loss of this tax.
e. In a diagram, show the equilibrium in part a and the equilibrium in part 3; and the areas that you computed in part b and d.