D10: Solving for BAU and Policy Equilibria

Suppose the market for a good can be described by the market demand and supply equations below:

`Q^D = 200-P^d`

`Q^S = -40 + 2P^s`

Initially there is no tax in the market. The government is considering imposing a new tax of $30. Please use a sheet of paper or a tablet to write out the answers to the following questions. Be sure to show your work, don't just write the final answer. Then submit it by scanning and attaching it to the assignment in Teams.

1. Solve for the BAU equlibrium when the tax is 0. Determine the values of `P_1^d`, `P_1^s` and `Q_1`.
2. Solve for the policy equilibrium when the tax is $30 and determine the values of `P_2^d`, `P_2^s` and `Q_2`.