For all graphs, be sure to correctly and completely label all axes and curves and use arrows to indicate the direction of any shifts.
Assume that the market for crumpets is in equilibrium.
Graph the market, assuming unit-elastic supply and demand. Label the equilibrium price Pe and the equilibrium quantity Qe.
Ceteris paribus, producers increase their price from $2 to $3. Quantity demanded falls from 100 thousand units to 90 thousand units. What was the price elasticity of demand across this range?
Is the price elasticity of demand from part (b) elastic, inelastic, or unit elastic across this range? Explain using the elasticity coefficient.
Several crumpet producers enter the market. Illustrate this on the graph from part (a), labeling the new equilibrium price and quantity Pe2 and Qe2, respectively.
What happened to consumer surplus as a result of part (d)?
The government imposes a per-unit excise tax on tea. On a new graph, illustrate the effect of the tax on the market for tea. Label the new equilibrium price Pt and the new equilibrium quantity Qt.
Shade the area of deadweight loss from the tax in your graph from part (f).
After the tax, the buyer's price is $4 and the seller's price is $2. If the after-tax equilibrium quantity is 80 thousand units, what is the tax revenue?
