Question

1. For Questions 1-15, consider a competitive market for a good where the demand curve is determined by:

   the demand function: P = 5+-1*Qd and

   the supply curve is determined by the supply function: P = 0.5*Qs.

   Where P stands for Price, Q^D is quantity demanded and Q^S is quantity supplied.

   What is the quantity demanded of the good when the price level is P = $4?

QUESTION 2

1. What is the quantity supplied of the good when the price level is P = $4?

QUESTION 3

1. At P=$4 there is:

   		a. Competitive equilibrium in the market;
   		b. Excess supply in the market;
   		c. Excess demand in the market;
   		d. Rationing in the market;

QUESTION 4

1. What is the value of the price elasticity of demand if the price of the good changes from Po=$4 to Pi=$5?

   NOTE: Express your answer in NEGATIVE terms.

QUESTION 5

1. What is the value of the price elasticity of supply if the price of the good changes from Po=$4 to Pi=$5?

QUESTION 6

1. What is the equilibrium quantity level for the good in the competitive market?

QUESTION 7

1. What is the equilibrium price level for the good in the competitive market?

QUESTION 8

1. What is the consumer surplus in the competitive market?

QUESTION 9

1. What is the producer surplus in the competitive market?

QUESTION 10

1. What is the total surplus in the competitive market?

QUESTION 11

1. For Questions 11-15, additionally assume a market intervention of the form of per unit $2 tax on the consumption of the good.

   How many units of the good are sold in the market at equilibrium considering this market intervention?

QUESTION 12

1. How much are consumers going to pay per unit of the good under this market intervention?

QUESTION 13

1. How much is the per unit amount that producers will receive as payment under this market intervention?

  

QUESTION 14

1. How much are the tax revenues under this market intervention?

QUESTION 15

1. How much is the Dead Weight Loss under this market intervention?

Answer 1

AnsWER Demand - supply P-S-Qd. Qela 5-p. Pa 0.50s. Qs = 21 when p=$4 Quantity demand Qdo - 5-4 I unds. ( when p= 84 supplied OS 2(4) 8 units en & At P- &e there (c) Excess supply. Quantity Supply is greater Exen than supply refers to a situation when Quantity demons. & elasticity percentage change in Grantity 08-14 percentage Change in price AS P = 4 12=5 QIRI 020 s. CQ- * 01x100 100 s. Al 2 S.4 x 100 Loos 25.

elasticity 1.00 1.AP 4004 -4 So elasticity of demand – 4. (5) Por or $4 & Piz 85 Dir 10 1. 405 - lordx100 Kloro OX & 25000 7.2 P= S-4 too 05') elasticity of supply 24 so elastirity (6) at equilibrium 5-P = 21 3p=5 Q2 Q2 2016) Q. 3.39 p. 1666 P= 1167 at equilibrium Quantity 8.34 units.

P= 2P 221167) Q- 3.34 P= 1.67 pnte. $1.67 at evilibrium above the equilibrium (8 consumer pare Surplus - and below It the is the demand Area curre. supply. Price 1.671 Demand 1 2 3 3.344 1.67 Quantity consumer Surplus. Ex (5-167) x (3.34-0) 1/2 x 3.34 x 3.24 h - 5.56 so consumer surplas – 85.56

It 10) bele is the area price and above the in the area below the equilibrium supply cerve is called producer Suoples 1x (167- ) x (334-0) 1.64 •64x2.34 - - $2.79 so producer susplus $2.79 (90) procurer surplus consumer surplus & Total producer = suoples 856 +2.79 So - $8.35 Total producer suspies is 0 T9x = $12 New supply equation Qs: 1p-2) QS2 28-4. at equilibrium 28-4- SP Pa 264 - 213)-4 - 64 - 2 units co

A at equilibrium zunits of goods are sold. (12) The consumer going to pay is $3. under this mortet 43 producer will intervention is receive as payment $100. (14) Tox Revenue - (3-1) x (2-0) 2x2 (15) supply & tax 3 41 Deadweight loss. supply Price 2 + 767- 17-- Demand 0 Tox Revenue Dead weight lost Фyan+ tx 316+) x (3.34-2) 2x 1.33 -prona - $ 0.891 = $0.89

- IX (1.67-1) X (3.34-21 box o 64x +39 - v '4489 - 8.0.45 so Deadweight loss is - - 0.89 +0:45 $134