Question

The domestic demand for mp3 players is given by P = 85 - Q. The supply of domestic producers is given by P = 10 + Q, and the international supply by P = 20. Note: For each graphing question, select the proper drop-down for the graph and plot the lines using two points. Round your numerical values to the nearest whole digit. - Demand Line Price ($) 10 20 80 90 100 30 40 50 60 70 Quantity (mp3 players) Reset

Answer 1

Demand; P = 85 - Q

At P = 0, Q = 85

At Q = 0, P = 85

Supply: P = 10 + Q

At Q = 0, P = 10

Equilibrium condition; Qd = Qs

85 - P = P - 10

2P = 85 + 10

2P = 95

P = $ 47.5

Q = 85 - 47.5

Q = 37.5 units

a) Amount supplied by domestic suppliers = 10 mp3 players

Amount supplied by foreign suppliers = 65 - 10 = 55 mp3 players

b)

Supply Supply with subsidy 60+ ($) əgud 45 Cost of subsidy 30+ World Price 15771 Demand 10 20 80 90 100 30 40 50 60 70 Quantity (mp3 players)

Supply after subsidy: P + 10 = 10 + Q

P = Q

At Q = 0, P = 0

New Equilibrium: 85 - P = P

2P = 85

P = 42.5

Q = 42.5 units

Amount supplied by domestic suppliers = 20 mp3 players

Amount supplied by foreign suppliers = 65 - 20 = 45 mp3 players

c) Subsidy cost = Area of rectangle + Area of triangles

= (52.5 - 42.5)(37.5 - 0) + 1/2 x (52.5 - 47.5)(42.5 - 37.5) + 1/2 x (47.5 - 42.5)(42.5 - 37.5)

= 10 x 37.5 + 1/2 x 5 x 5 + 1/2 x 5 x 5 = 375 + 12.5 + 12.5 = $ 400