1. Consider the following figure. If a price ceiling of $180 is imposed, how much is the quantity demanded? Also, calculate the amount of shortage.
2. Consider the following figure. Tax is levied on sellers. Find an expression for the tax burden on buyers. Also, find the areas that represent DWL.
3. Refer to the following table. The price of erasers increases from $1.50 to $2.00 per eraser. Using the midpoint method, what is the cross-price elasticity of demand between pencils and erasers?
4. Consider the following figure. If the government imposes a price ceiling on wheat at $2, calculate the amount of shortage
Homework Answers
1) price ceiling is above the equilibrium price, market will clear.
Quantity = 3000000 (there will be no shortage as Qs = Qd)
2) tax burden on buyers = Pc - Pe (per unit)
DWL = F + E (total surplus lost as a result of tax)
3)
Cross price elasticity = (Q2 - Q1)/(P2 - P1) x (P2 + P1)/(Q2 + Q1)
CPE = -1/0.5 x 3.5/19 = - 0.37
4) price ceiling = $ 2
Shortage = Qd - Qs = 5000000 - 4250000 = 750000
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elasticity of demand for erasers if the price of erasers decreases
from $2.5 to $1 using the midpoint method.
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Refer to the accompanying table, calculate the price elasticity of
demand for erasers if the price of erasers decreases from $2.5 to
$1 using the midpoint method.
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