Questions: Q1. In a market for roosters, the inverse demand curve is given by P = 10 – 0.2QD and the market supply curve is given by Q S = 20P – 25. Suppose the price is given in dollars and the...

Questions: Q1. In a market for roosters, the inverse demand curve is given by P = 10 – 0.2QD and the market supply curve is given by Q S = 20P – 25. Suppose the price is given in dollars and the quantity is given in pounds. In solving the following problems, show the steps in the calculation. a) Find the demand choke price and the slope of the demand curve. What does this slope mean? Find the demand curve equation keeping only Q on the left side. b) Find the supply choke price and the slope of supply curve. What does this slope mean? c) Determine the equilibrium price and quantity. Show the whole scenario in a graph with price on the vertical axis and quantity on the horizontal axis. Label both the axes, name the lines, show all important points using a full page for this graph. d) What happens to the quantity demanded and supplied if the price is set $1 below the equilibrium price? What is the excess or surplus in quantity in that case? Show this in the same graph above. Page 2 of 3 e) What is the new demand equation if demand increases by 25 units at each price? Determine the new equilibrium P and Q. Show the shift of the demand curve in the same graph and mark the movement with an arrow. f) The change in the equilibrium is a movement along which curve? g) Give an example of an event due to which this shift in demand may have occurred in the rooster market. h) When demand shift inward but supply shifts outward, the equilibrium price will certainly fall. However, equilibrium quantity may (a) increase, (b) keep unchanged, or (c) decrease. Draw the three panels of figures showing the these three cases. (Figure 2.12 in the lecture note shows another set of shifts. It can serve as a guide.) Q2. a) Write the definition of price elasticity of demand and show the derivation of the formula of price elasticity of demand. (You may just write it from the lecture note. The goal is that you understand how the formula is derived from the definition.) b) What is the slope of the demand curve given by Q D = 50 – 5P ? Find Q D at point A on the demand curve where P is $7. Find the E D at this point using the formula and explain what this value of E D mean. Does it indicate elastic or inelastic demand? c) Find the E D on the demand curve at point B where P is $5 and at C where P is $3. d) What trend do you notice in the E D while moving from point A to B to C? Can you explain the reason behind the trend? e) For the same supply curve Q S = 20P – 25 as in the previous question, find the E S at the point where P is $3. Does it indicate elastic or inelastic or unit elastic demand? f) The sign of the cross-price elasticity of two substitute goods is positive and that for two complement goods is negative. Can you explain why that is so? Q3. The demand curve for roosters is given by Q D = 50 – 5P and market supply curve is given by Q S = 20P – 25 as in the previous questions. From the previous analysis you already know that the equilibrium price is $3 and the equilibrium quantity sold is 35 roosters. Page 3 of 3 a) Draw the figure for the equilibrium analysis once again. Find out the consumer surplus and the producer surplus in the market and show this in the same figure. b) If the authority declares that price must not be more than $2.50, what will be the impacts on PS and CS? What is the size of the dead weight lost DWL? Also, show these all in the same figure above. Q4. Suppose in a market, the demand curve is given by Q D = 2200-200P and supply curve is given by Q S = 300P-2300. a) Draw the demand and supply curves and show the equilibrium Qe and Pe. b) Determine the CS and PS. c) Suppose that a quota is then imposed at 300 units. Describe the new kinked supply curve. d) Find the new CS, PS, transfer, and the DWL. Q5. The demand and supply functions in a market for certain types of tickets are described by Q D = 8,000 − 500P and Q s = 1000P − 2,500. a) Solve for the equilibrium Q e and P e , CS and PS. b) Draw the demand and supply curves and show the equilibrium Q e and P e . c) The government then imposes $2.4 tax per ticket. Derive the equation for the new supply curve. d) Use the new supply equation with the original demand curve to solve for the new equilibrium quantity Q e . e) Use this equilibrium Q e into the demand equation to solve for the price Pb that buyers pay. f) Use the same Q e into the original supply curve to solve for the Ps, the price that seller gets. Or you can use Ps= Pb - tax. g) Find the new CS, PS, transfer, DWL and the government tax revenue. h) Determining the share of the $2.40 tax borne by the buyer and the seller. How much tax revenue do consumers really bear? How much of the tax revenue do sellers really bear?
Sep 08, 2021
SOLUTION.PDF

Get Answer To This Question

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here