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Answered 3 days AfterJan 07, 2021ECO100ICMS (International College of Management Sydney)

Solution

Komalavalli answered on Jan 11 2021
60 Votes
Question 1:
Demand: P = 10-Q
Supply: P = Q-4
1) Equili
ium price and quantity
At equili
ium point demand for tea is equal to the supply for tea
10 –Q =Q -4
2Q = 14
Q =7
Substitute Q = 7 in demand equation we get
P = 10 – 7
P = 3
Therefore equili
ium quantity is 7 kilograms of tea and equili
ium price is 3.
2) Supply equation with Tax Pst = Q – 4 +1
Pst = Q – 3
Demand: P = 10-Q
At equili
ium point demand for tea is equal to the supply for tea with tax
10 –Q =Q -3
2Q = 13
Q =6.5
Substitute Q = 6.5 in demand equation we get
P = 10 – 6.5
P = 3.5
Therefore equili
ium quantity is 6.5 kilograms of tea and equili
ium price is 3.5.
The tax burden will fall on the supplier of tea because tea is a elastic good. The inefficiency of tax on the economy created is 0.5 kilograms of tea.
3)
QD – Quantity demand
QS – Quantity supply
QST– Quantity supply after tax
From above graph equili
ium point E represents market equili
ium for tea before tax. Equili
ium point ET represents market equili
ium for tea after tax.
Question 2:
1)
From above graph we can say that the equili
ium quantity of banana is 2250 and price is $2.5.Because, at equili
ium point E quantity demand for banana equals the quantity supply for banana.
2)
When the price of banana was $1.50 people demand 2750 quantities of bananas and producer will supply only 1250 quantities of banana. At this...
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