Economics help; tax incidence?

Question

I need some help with this, thank you so much!

Demand curve for distilled liquor is P=27 - 1/2Qd

Supply Curve is P = 3 + (3/2)Qs

1. Algebraically find the equilibrium prices and quantity. (Do I just set the two equal to each other? not sure..)

2. ..How do I find the statutory incidence given varying tax rates

Thank you!!!

Answer 1

1)

27-Q/2=3+3Q/2

2Q=24

Q=12

P=21

2) To find out - you should specify on whom initial tax will be levied, on seller or buyer.

If on seller then supply becomes P+T=3+3Q/2 or P=3-T+3Q/2

And equilibrium 3-T+3Q/2=27-Q/2

Q=12+T/2

P=21-T/4

But if on buyer then demand becomes P-T=27-Q/2 or P=27+T-Q/2

And equilibrium 27+T-Q/2=3+3Q/2

Q=12+T/2

P=21+3T/4