Information for questions 1-5 In a given market, inverse sup…
Questions
Infоrmаtiоn fоr questions 1-5 In а given mаrket, inverse supply is given by pS = 10 + 2 qS, and inverse demand is given by pD = 100 - qD. For the first four questions, there is no government intervention of any kind, and this market is in a perfectly competitive equilibrium. It will be useful to draw a graph that allows you to keep track of all the numbers and areas. On that graph, place the supply and demand curves (hint: they are just straight lines, and you just need two points to know the entire line), and then all areas, quantities, or prices, that you may want to calculate. You may want to draw your graph roughly on scale, although strictly speaking that’s not necessary, since you won’t use the graph to read off any answers directly, just to keep track of all the numbers that you may need for future use. Only the exact answers are accepted, so make sure to double- and triple-check your reasoning and calculations. Suppose that the government imposes a tax of $9 in this market. Calculate the quantity produced and sold in this market, in equilibrium. Hint: you will recall that, graphically, you just insert a wedge of $9 between the supply and the demand. Mathematically, that is the same as finding the unique quantity qS = qD = q that makes the demand price be $9 above the supply price, that is, that makes pD = pS + 9. Thus, consider the equation pD = pS + 9, and solve it for a unique q (not qS or qD separately).