Question

5. When someone's kidneys fail, the person needs to have medical treatment with a dialysis machine or they will die. a. Sketch a supply and demand diagram, paying attention to the appropriate elasticities, to illustrate that the supply of such dialysis machine will primarily determine the price. b. Indicate the change to equilibrium iflasdditional firms enter the market and offer dialysis. 6a. In a market where the supply curve is inelastic, how does an excise tax affect the price paid by consumers and the quantity exchanged? Illustrate with a market diagram. 6b. In the market diagram, show the amount of the excise tax. Do consumers or suppliers pay a higher proportion of the tax? 7. Write the formula for calculating cross price elasticity of demand. Beneath the formula, on four separate lines, identify the two variable terms in the numerator and the two variable terms in the denominator. 8. Compute the cross price elasticity of demand of tea for coffee if the price of coffee rises from $4.50 per pound to $5.50 per pound and as a result consumer demand for tea increases from 600 to 800 packets.

Answer 1

I will answer only Q5 as per HOMEWORKLIB POLICY . Kindly respect HOMEWORKLIB RULES as this is the rule.

5a)Kidney failure requires dialysis The demand for dialysis machine is inelastic which means demand is not affected by change in price..So the demand curve will be vertical ie parallel to the Y axis.So the price of machines will be determined where the demand curve is intersected by the supply curve.

b)Entry of new firms causes market supply curve to shift to the right . When supply curve shifts to the right , the market price falls As a result economic profit falls for new entrants as well as for existing firms . Entry will go on till profit exist and the supply curve will go on shifting to the right.