Consider the national market for electric school buses with the demand given by Qd=600-2P and supply...

Question

Consider the national market for electric school buses with the demand given by Qd=600-2P and supply given by Qs=3P-150. (Note:
the price is in thousands of US$ and quantity is in thousands of buses).

(10pts) Calculate the Total Surplus at the equilibrium point and provide a succinct argument as to why the equilibrium represents an efficient allocation of resources in this market.


(10pts) Consider now that the price of electric school buses increases by $60 (thousands) above the equilibrium price due to a tax on e-waste containing products. Will there be any efficiency losses (i.e. decrease in Total Surplus)? Calculate the new Total Surplus and find the Deadweight Loss due to this tax.


(10pts) Compute the Leakage that occurs after the tax in c is implemented (hint: use the DWL only from the consumer side). What is the significance of this number? Why is it important from a tax policy perspective?

Answer 1

---