Description
Analyze what would happen to the equilibrium price and quantity in the market for Pepsi if the following occurred. Briefly explain your answers.
The price of Coke increases.
Average household income increases from $100,000 to $150,000.
There are improvements in farming technology.
The price of paint and the price of homes increase.
Analyze the following demand and supply equations to answer the questions.
Demand Equation: Qd = 80 – 2P
Supply Equation: Qs = 18 + 4P
What is the equilibrium price? What is the equilibrium quantity?
Hint: Equate Qd = Qs. Solve for the equilibrium price and then the quantity.
Assume the government places a price ceiling at $5 in the market. What is the quantity demanded? What is the equilibrium?
Using the diagram below, answer the following questions:
(Description of graph: The diagram shows the effects of tax increase on price and quantity of cigarettes. The initial equilibrium values before tax increase occurs at the equilibrium quantity of 20 billion packs of cigarettes at the equilibrium price of $4.50. Assume the government increases the tax rate on cigarettes per pack, and this action of the government shifts the supply curve to the left. The new equilibrium values after tax increase are new equilibrium quantity of 18 billion packs of cigarettes at the new equilibrium price of $5.50. Note also that the minimum producers’ price along the supply graph at the new equilibrium after tax increase is $4.25 per pack of cigarettes.)
How much is the per-unit (pack) tax on cigarettes? Show your work.
What price do consumers pay after the tax?
How much tax revenue is collected? Show your work.
What is the amount of deadweight loss after the tax is imposed on cigarettes? Show your work.
