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Clear definitions except for the equilibrium price you obtained above, p.Suppose that consumers pay a unit tax of t so that when producers receive the price P, the consumer’s price is P+t.Define the tax-inclusive supply and demand functions:S=a+bPD=c-d(P+t)Solve for PS=Dto obtain the equilibrium price. Define this solution, the equilibrium price, as ρ (the Greek rho). This is a function of the parameters and the tax. Note that under the tax, the equilibrium price that producers receive is ρ and the tax-inclusive price that consumers pay is ρ+t.4. Write the expression for ρ.The consumer tax incidence (I call it f here) equals the increase in equilibrium consumer price as a fraction of the tax:f=((ρ+t-p)/t)and the producer tax incidence (I call it g here) equals the decrease in equilibrium producer price as a fraction of the tax:g=((p-ρ)/t)(Note that here I write the tax incidence as a fraction rather than a percent. Remember that you can express the tax incidence in either way — just be clear about which you are using.)Define these two functions, simplify them, and tell SN to check the equality:f+g=1Now suppose that producers rather than consumers pay the tax. If consumers pay the price P, producers receive (net of the tax) P-t. The supply and demand functions areS=a+b(P-t)D=c-dPDefine these functions and solve for the equilibrium price; denote it as φ (the Greek phi). Define the consumer and producer tax incidence as, respectively, F and G. (Note upper case to distinguish from the tax incidences defined above.) Tell SN to simplify F and GQ) Could you please figure out question 4? The question is above from hereThe new equilibrium is S=D,i.e. a+b(P-t) = c-dP,i.e. φ=(c-a+bt)/(b+d).With respect to the original equilibrium price P, the consumer price incidence is given asF=( φ-P)/t.The producer price incidence is given as,G=[P-(φ-t)]/t = (P- φ+t)/tHere F represents the fraction of the tax which is paid for by the consumers while G represents the fraction of tax which is paid by the producers to the tax authority.Q) Write the expressions for φ,F, and G.Tell SN to check the equalitiesf=Fg=G
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