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In: Economics

Directions: For each question, show what happens to Equilibrium price (P) and quantity (Q) using supply-demand...

Directions: For each question, show what happens to Equilibrium price (P) and quantity (Q) using supply-demand analysis. Clearly state your conclusion (e.g., "equilibrium price increases, while equilibrium quantity decreases" using the short-hand " ^P and vQ"). Be sure to complete and correctly label your graphs.

Question 4:

Part A:

Suppose government taxes coal fire powered plants a certain amount per ton of coal burned to generate electricity. Everything else held constant, what will happen to the equilibrium price and quantity of electricity generated by natural gas plants if coal and natural gas are consumption substitute?

-> Insert graph

Conclusion:

Part B:

Suppose that an economic downturn realists in the decrease in average consumer income. Everything else held constant, what will happen to the equilibrium price and quantity of airplane travel (assuming air travel is a normal good)?

-> Insert graph

Conclusion:

Solutions

Expert Solution

Rahul Sunny answered 2 days ago
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