Perfectly Elastic demand and Equilibrium
Assume that the weekly supply of 16 oz bottles of soda at convenience stores in the Twin Cities of Minneapolis and St. Paul is a function of price such that:
Qs = -20 + 80P
Where Q is the number of sodas sold in convenience stores (in thousands) and P is the soda price. Assume demand is perfectly elastic at a price of $ 1.
A)Derive the soda supply curve where price is expressed as a function of output. Calculate the equilibrium level of output and convenience store sales revenue.
B)Derive a second curve based upon the assumption convenience store sales become subject to a 5-cent recycling fee. Calculate the price and quantity effects of the recycling fee. With perfectly elastic demand, who pays the economic burden of such a fee?