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The equilibrium price of avocados in given market is $3.00 per pound. At this price the...

  1. The equilibrium price of avocados in given market is $3.00 per pound. At this price the quantity of avocados is 42 tons. If the government imposes a price ceiling of $2.00 on avocados, the quantity suppled of avocado would fall to 36 tons, and a shortage of 12 tons would occur. Draw a diagram to demonstrate this scenario.

  1. Calculate the price elasticity of demand and price elasticity of supply based of the information demonstrated on your graph.


  1. Going back to the original equilibrium, suppose the government imposes a $1.00 excise tax on avocados. Show the effect of this tax on your graph. Could you show how much of this tax would be borne by consumers and how much by sellers?

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