Question
In: Economics
Suppose the economy has access to 1000 Mahogany trees, used for making guitars. Processing the trees...
Suppose the economy has access to 1000 Mahogany trees, used for making guitars. Processing the trees for guitar production costs $1 per tree. This economy may access 1000 additional trees (perhaps existing in the outskirts of the town) but it costs $3 to use each of those trees. Assume 5 trees are needed to produce one guitar.
Questons :
(1) What is the Supply curve for guitar production? You may answer with a fully labeled picture.
(2) If the demand function for guitars is D(p)=220-2p, what is the equilibrium price and quantity in the market for guitars? Credit is based on the logic of your explanations, so explain your reasoning!
(3) Suppose the government wants to incentivize people to play more guitar, so they place a subsidy of $5 per guitar. That is, if the consumer pays p, the firm gets p+5. Will the government achieve it's goal of having more guitars bought in equilibrium? Credit is based on the logic of your explanations, so explain your reasoning!
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
Suppose the economy has access to 1000 Mahogany trees, used for making guitars. Processing the trees...
Suppose the economy has access to 1000 Mahogany trees, used for
making guitars. Processing the trees for guitar production costs $1
per tree. This economy may access 1000 additional trees (perhaps
existing in the outskirts of the town) but it costs $3 to use each
of those trees. Assume 5 trees are needed to produce one guitar.
Questons : (1) What is the Supply curve for guitar production? You
may answer with a fully labeled picture. (2) If the demand...
Suppose the economy has access to 1000 Mahogany trees, used for making guitars. Processing the trees...
Suppose the economy has access to 1000 Mahogany trees, used for
making guitars. Processing the trees for guitar production costs $1
per tree. This economy may access 1000 additional trees (perhaps
existing in the outskirts of the town) but it costs $3 to use each
of those trees. Assume 5 trees are needed to produce one
guitar.
Questions : (1) What is the Supply curve for guitar production?
You may answer with a fully labeled picture.
(2) If the demand...
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