Question

(1) Assignment 1 Questions: Imagine a country where plane and train services between two main cities are both completely provided by private companies, and, from a consumer perspective these services are perceived as substitutes. The demand for plane trips services is: D1 = 3,000 - 200P, +30P, + 2Y Where D1 is annual demand for plane trips, P1 is price of plane trips, P2 is price of train trips and Y is average annual consumer income. Assume the supply of plane trips by the industry can be described by: S = 300P (2) Where S1 is the number of plane trips, and the market clears so: D = $ (3) Assume the average annual income, Y, is $80,000 and the price of train trips is P2 = $500. Further, assume the market always clears, there are no empty planes and trains, and producers are competitive. Ignore externalities such as pollution

Answer 1

8. in the Ginen Puthing equation for D = 3000 - 2008, it 30l2 + 27. - S 3000, Y = $ 80,000 ; P - $500 g values ginen demand for plane trips op, + 30.500 to 2-80,000 the 300D 200 3000 200 p + 15,000 + 160,000 o 0,= 178,000 - 2002, S, 300 P, o and ☺ foi equilibrium equating D- St 178,000 - 200 P, 178,000 300 P, 500l, Р. 356 - A a) Equilibrium brium price for plane trips Pi - $356.

Demand for plane trips D, a 178,000 - 2000, 178.000 - 200. 356 106,800 D, supply of plane trips S, 3001, 1000 300.356 106,800 S = c) Diagram Price E p& (356) S ( 106, 800) Quantity

as government puto $170 this tax When the tax on each plane trips amount ultimately borne by consenner . is the : New New price Pt $100 is paid 356 + 120 $476 & 476 paid by the customer Demand & at $476 ; 178,000 200p, 178,001 - 200.476 82,800 supply Dia S, . 300 P, 300. 476 142,800 ...S, Demand for plane trip = 82,800 142,800 supply of plane trip