Question

2. Consider the following demand Qd = 140 - 3P and supply QS = 20 + 20P for lunch at the Trump Golf and Country Club. a. Draw the demand and supply curves and calculate the equilibrium price and quantity. b. The government has imposed a sales tax of $2 on restaurant meals. Show how the above market is affected, and the new equilibrium price and quantity. (calculation is necessary). Explain and illustrate how the consumer's welfare is affected. Specifically show how the (1) consumer surplus, (2) total value, and (3) marginal value change. 3. Graphing. a. Using the labeled indifference graph below for good A (horizontal axis) and Good B, illustrate how the indifference curves (add others) and budget lines would look to achieve a perfectly inelastic demand curve for Good A. Also show the demand curve for good A on a properly labeled graph. b. Explain what is happening with the substitution effect and income effect.

Answer 1

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