Many studies on rats and mice have established that charred meat grilled over hot coals causes cancer.

1.     Many studies on rats and mice have established that charred meat grilled over hot coals causes cancer. Since the government cannot easily regulate home cooking methods, an alternative method has been proposed to discourage the consumption of barbecued meat. The proposal is to place a 100 percent tax at the retail level on charcoal briquets. Suppose the daily demand for charcoal was P = 120 – 2Q and the supply was P = 30 + Q, where P is in dollars per bag and Q is the number of 20-lb bags of charcoal sold weekly. (35 points)

a.     What is the before- tax price and quantity of charcoal? Show your work.

b.     What is the after- tax price and quantity of charcoal (make sure to provide the price paid by consumers and the price received by sellers)? Show your work.

c.      How is the tax divided among sellers and buyers? Make sure to provide a measure. Show your work.

d.     What is the before- and after- tax consumer surplus? Show your work.

e.      What is the loss in consumer surplus?

f.       What is the before- and after- tax producer surplus? Show your work.

g.     What is the loss in producer surplus? Show your work.

h.     What is the government tax revenue? Show your work.

i.       What is the before- and after- tax total surplus? Show your work.

j.       What is the deadweight loss? Show your work.

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