(a) To find (a), the first step is to determine the equilibrium price and quantity before the imposition of the excise tax.

QD = 60 - 10P

QS = 10P

At equilibrium QS = QD:

• 60 - 10P = 10P
• 60 = 10P + 10P
• 60 = 20P
• P = $3

Substitute 3 in either equation to get equilibrium quantity:

• QS = 10P
• QS = 10(3)
• Q = 30 units

Now, we can determine the equilibrium price and quantity after the imposition of the $2 excise tax. The tax is collected from the producers, so it reduces the price of producers.

• The new supply equation will be: QS = 10(P - 2)
• QS = 10P - 20
• The demand equation remains the same: QD = 60 - 10P

At equilibrium, QS = QD.

• 10P - 20 = 60 - 10P
• 10P + 10P = 60 + 20
• 20P = 80
• P = $4

Equilibrium quantity:

• QS = 10P - 20
• QS = 10(4) - 20
• Q = 40 - 20
• Q = 20 units

The new equilibrium price is $4, and the new equilibrium quantity is 20 units.

(b)

The equilibrium price increased by $1, so because the tax was $2, it means that the tax imposed by the government is shared equally between the consumers and producers.

• Consumers pay $1.
• Producers pay $1.