Q2. Draw a neatly labelled diagram indicating the price effect – the direction of substitution effect...

Q2. Draw a neatly labelled diagram indicating the price effect – the direction of substitution effect and the direction of income effect separately, for a normal good when price of Good-X (on X-axis) increases.

Q3. Given a supply curve equation Q_s=500(P-2) and demand curve equation Q_d=11000-1000P.

Find the equilibrium price and quantity.
Draw a neat diagram of the equilibrium situation with everything labelled properly.
Calculate consumer surplus, producer surplus and deadweight loss (if any) at equilibrium.
Suppose the government mandates a maximum price of $4 in this situation- draw a neat diagram representing the situation. Label the areas of CS, PS and DWL properly.
Calculate CS, PS and DWL when price is set at $4.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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