The daily market for cups of chai tea at Jeff’s Espresso is given by the following supply and demand equations

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The daily market for cups of chai tea at Jeff’s Espresso is given by the following supply and demand equations.

QD =160−20P QS = 20P

Please answer the following questions about this market:

a. Draw the supply and demand curves below. Be sure to label the y-intercepts of each graph and the equilibrium and label the supply curve S. Solve for the equilibrium price and quantity in this market.

b. What is the consumer surplus in this market? What’s the producer surplus in this market?

c. Now imagine that the city imposes a $0.50 per cup tax on all hot drinks. This changes the equation of the supply curve to

QS = 20P − 10
Draw this new supply curve on the graph, label it S2. Calculate the new equilibrium price and quantity in the market. What is the deadweight loss of the tax?