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Econ 101 Economic Questions Solution.edited

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Running head: ECONOMIC QUESTIONS SOLUTION, ECON 101 ECONOMIC QUESTIONS SOLUTION, ECON 101 Name: Institution affiliation: Date: 1 ECONOMIC QUESTIONS SOLUTION, ECON 101 2 ECONOMIC QUESTIONS SOLUTION, ECON 101 QUESTION 1 (a) First, we will calculate the equilibrium price. At equilibrium, the quantity demanded is equal to the quantity supplied. QD =QS From the demand equation (P = 180 – 2Q), Q = 90- 0.5P From the supply equation (P = 4Q), Q = 0.25P Equating the two; 90-0.5P =0.25P 0.75P =90 P=$120 Therefore, a black market will not exist because the price ceiling is more than the equilibrium price and it will be free for sellers to charge any price below $130 and the equilibrium price will be inclusive. (b) The price elasticity of demand is elastic because a small increase in price leads to a significant decrease in the quantity demanded. (c) The price elasticity of supply is elastic because a massive increase in price leads to a small decrease in the quantity demanded ECONOMIC QUESTIONS SOLUTION, ECON 101 (d) He should increase the price because $95 is below the equilibrium price ($120). It means he can increase the price and sell all his goods. QUESTION 2 (a) The tax rate is $3 ($17-$14) (b) The consumers pay $2 ($17-$15), and the producers pay $1 ($15-$14) (c) The price elasticity of demand is more inelastic than the price elasticity of supply because consumers are taxed more meaning they are less sensitive to the price increase. (d) The blue shaded area shows the ...
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