Question

(a)Explain incidence of direct and indirect taxation using appropriate diagrams. (b)Suppose that the demand and supply for a product sold in a perfectly competitive market are given by the equations:

Qd= 130 – 2P

Qs= -50 + P

(i) What are the perfectly competitive equilibrium price and quantity for this product?

(ii) Suppose the industry that produces this product causes environmental damage valued by the government at 0.5 per unit of output. Determine the socially optimal price and output level for this product.

(iii) What tax should the government add to the price of the product to obtain the socially optimal output level?

(c)Suppose the demand function facing a company manufacturing a particular product (X) is given by

Qx = 62 – 2Px + 0.2M + 25A, where

Px is the price of the product

M is the consumer income, and

A is the amount of advertising expenditure.

If Px is 4, M is 150 and A is 4,

(i) Calculate the amount of X purchased.

(ii) Calculate the income elasticity of demand. Is X a normal or an inferior good?

Answer #1

Question 4
a. Explain own price, cross price and income elasticities of
demand and how they are measured.
b. Suppose the demand function facing a company manufacturing a
particular product (X) is given by
Qx = 62 -2Px + 0.2M + 25A
Where:
Px is the price of the product
M is the consumer income, and
A is the amount of advertising expenditure.
If Px is 4, M is 150 and A is 4
You are required to calculate:
i....

Question 2. The market supply and demand curves for a product
are:
QS=0.5P (supply curve)
QD=60–2P (demand curve)
where Q is the quantity of the product and P is the market
price.
(1). Calculate the equilibrium price, equilibrium quantity and
total social welfare. (10 points)
(2). Suppose that the market has changed from a perfectly
competitive market to a monopoly market, calculate the new
price–output combination and the total deadweight loss in the
monopoly market. (10 points)

The demand curve for potatoes is given by:
QX = 1,000 +0.3I - 300 PX + 200 PY,where QX = Annual demand in
pounds
I = Average income in dollars per year
PX = price of potatoes per pound,
PY = price of rice per pound.
(a) (1) Discuss whether potato is a normal good or an inferior
good.
(b) (1) Suppose I = $10,000: What would be market demand for
potatoes?
(1) Determine whether X and Y are substitutes...

Suppose the relationship between Demand for good x (Qx) can be
described by the following linear relationship (Py: price of good
y, I = income):
Qx= 120 – 6Px + 5Py + 3 I
From the demand relationship above, you can conclude: Goods X
and Y are substitute/complementary goods
because_______________________, and a decrease in Py would cause
quantity demanded/demand of Good X to increase/decrease.
Suppose Py = $5 per unit, and I = $10, and Px = $20. At these...

Consider the market for good Q. The inverse demand function is
p(Q) = 24 – 2Q, where p denotes the price of good Q. The production
costs of the representative firm are C(Q) = 4Q. In addition,
production causes environmental damage of D(Q) = 12Q.
a) Determine the socially optimal output level Q*. Discuss the
optimality condition and illustrate your solution in a
diagram.
b) Assume that there is no government intervention. Calculate the
market equilibrium in the case of...

Suppose the demand function for ice cream (good X) is given by
Qx^d= 1200-5Px-0.08Pz+0.04M+3A where Px =$40, Px=$100, M=3000, A=
700, Z is a related good, M is income and A is the level of
advertising. •determine the own price elasticity, and whether the
demand is elastic, inelastic, or unitary elastic? What should
managers do to increase their profits? • determine the cross price
elasticity between good X and good Z and state whether they are
substitutes, or complements and...

You are given the following information about the demand for and
supply of widgets in the Republic of Xénïa. Answer the questions
that follow. If you draw diagrams, use a ruler, label the diagrams
completely, show demand choke price, demand intercept, supply choke
price, supply intercept, etc. Do not use double columns or put
rectangles or squares around your answers. Use “D” for demand and
“S” for supply. Do not use Qd or Qs to label your diagrams.
Although you...

Part A
Product X has the following demand and supply functions:
Qd = 30 – 2p
Qs = -10 + 6p
The government does not currently place indirect taxes on
Product X. The production and consumption of Product X, however, is
considered to be undesirable. The government subsequently places an
indirect tax on the product which creates a producers price of $4.
Product X also has a coefficient of income elasticity of +2
Use the above information to...

Question A1
(a) Answer the following questions by using demand and supply
analysis for the market of printer.
(i) Suppose the production of printer is now
completely-automated. Use the demand and supply analysis to explain
how it affects the market of printer. What are the effects on the
equilibrium price and equilibrium quantity of printer? No diagram
is needed but you need to describe how the curve(s) shift(s).
(ii) Suppose the price of ink for printers increases
substantially recently. Use...

Suppose that a market is described by the following supply and
demand equations:
QS = 2P
QD = 400 - 3P
Suppose that a tax of T is placed on buyers, so the new demand
equation is
QD = 400 – 3(P+T)
Solve for the new equilibrium. What happens to the price
received by sellers, the price paid by buyers, and the quantity
sold?
Tax revenue is T x Q. Use your answer from part (b) to solve for
tax...

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