Question

**Suppose a market’s demand and supply curves take on the
following characteristics:**

QD = 100 – 2.9(P) + 0.93(Y – T)

QS = 2(P)

where:

QD quantity demanded

QS quantity supplied

P price of the commodity

Y personal income

T personal taxes

**Given the above model, please answer the following
questions:**

**1.** What is the market-clearing price and
quantity if personal taxes (T) equal zero and personal income (Y)
is $400?

**2.** Suppose a personal tax rate of 20 percent is
introduced. a. What is the impact on the market equilibrium price
and quantity? b. What is the tax revenue received by the
government? c. How much did total revenue received by producers
change? d. How much did total expenditures by consumers change?

**3.** Suppose personal income rose by 10 percent.
Using the tax rate of 20 percent introduced in question 2 above, a.
What is the impact on the equilibrium price and quantity previously
calculated in question 2? b. What is the income elasticity of
demand? What does this calculated elasticity indicate about this
product?

**4.** If we added the real wealth term “+0.01(W)”
to the demand equation, how much would your answer change in
question 1 (price and quantity) if the level of real wealth was
$3,000 (i.e., W = 3,000)? Draw a graph depicting the effects this
has upon market equilibrium compared to your answer to part 1

Answer #1

Price and quantity falls.

Total revenue in A.=P*Q

TR=96.34*192.68=18,568.79

TR in B=96.29*192.58=18,543.53

Fall in TR=18,568.79-18,543.53=25.26

Total expenditure=P*Q

Fall in total expenditure= fall in TR.

ONLY 4 QUESTIONS NEEDS TO BE ANSWERED IF A QUESTION HAS MORE THAN 4 SUB PARTS.

Suppose a market’s demand and supply curves take on the
following characteristics:
QD = 100 – 2.9(P) + 0.93(Y – T)
QS = 2(P)
where:
QD quantity demanded
QS quantity supplied
P price of the commodity
Y personal income
T personal taxes
Given the above model, please answer the following
questions:
1. What is the market-clearing price and
quantity if personal taxes (T) equal zero and personal income (Y)
is $400?
4. If we added the real wealth term “+0.01(W)”...

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c) At the equilibrium price and quantity, what is the price
elasticity of demand?
d) Interpret the price elasticity of demand. How much will
quantity change if the price increases by 1%?
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1.Given: Suppose you are given the following market demand
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where P is the price per unit of apples, I is
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Suppose that a market is described by the following supply and
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QS = 2P
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