Question

In: Economics

Demand Equation: QD = 250 − 5P Supply Equation: QS = 10 + 3P

Demand Equation: QD = 250 − 5P

Supply Equation: QS = 10 + 3P

1. When P = 5, what is the elasticity of supply?

2. What is The equilibrium price?

3. At the equilibrium price (from Question 2), what is the Consumer Surplus equal to?

4. Suppose the government imposes a tax of of $8 per unit sold of the good. How much of the tax does the consumer pay (per unit)?

Expert Solution

1. Es = ((25-22)/22)/((5-4)/4) = 0.55

2. Equilibrium price = 30
Qd=Qs
250-5P=10+3P
240=8P
P=30

3. CS = 0.5*100*20 = 1000

4.

P	Q	S	S2
0	250	10	-14
5	225	25	1
10	200	40	16
15	175	55	31
20	150	70	46
25	125	85	61
30	100	100	76
35	75	115	91
40	50	130	106
45	25	145	121
50	0	160	136

So, new equilibrium price is 33, producer receives 25 and consumer bears $4 out of $8

Rahul Sunny answered 2 years ago

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