Question 2.Renting a room in Bristol can be represented by the inverse demand functionIp=240-and the inverse supply function P=10+s The price,P,is measured￡per week and the quantity,Q,is the number of rooms rented.a)Find the equilibrium price and quantity and draw them in a graph.b)If the government believes the market price is too high given the average income,would a price cap of￡0 be reasonable?Show diagrammatically and explain.c)If government imposes a tax,t E20,per room rented on landlords.Find the newequilibrium and illustrate the pre and post-tax equilibria in the same graph.d)Calculate the consumer surplus,producer surplus before and after the governmentintervention.Also calculate the tax revenue and the deadweight loss.e)Instead of imposing a per unit tax on landlords,the government decides to imposean ad valorem tax of 20%per room rented.Find the new equilibrium.f)Which tax would be better?Explain.
