u13. The market for good X is perfectly competitive. The demand and supply functions of good...

u13.
The market for good X is perfectly competitive. The demand and supply functions of good X are given as follows:

uQd = 6000 – 30 P Qs = –500 + 20 P

uQd is quantity demanded in thousand units, Qs is quantity supplied in thousand units, and P is the unit price in dollars for good X. All 1000 firms in this market are identical and their cost structures do not depend on the number of firms in this market. Currently, this market is in long-run equilibrium.

a. What are the equilibrium market price and market quantity for good X? Please explain your calculations.

Now suppose the government gives an $8 per-unit subsidy to the consumers for each unit of good X consumed.

b. After the provision of this per-unit subsidy to the consumers, what are the short-run equilibrium market price and market quantity for good X? Please explain your calculations

c. What are the long-run equilibrium market price and market quantity for good X after the provision of this per-unit subsidy to the consumers? Briefly explain your answer.

Solutions

Expert Solution

The answers are attached below in the image files :

It is worth to notice that the actual price paid by the consumers in the long run is actually $126.8 and $8 is paid by the government. I have mentioned this separately as it could have led to the confusion that after subsidy price is actually greater than the before subsidy price.

Stay home. Stay safe!

Rahul Sunny answered 4 weeks ago

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