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Economic Equilibrium and Elasticity Analysis

The document outlines various economic problems related to equilibrium price and quantity, consumer and producer surplus, excess demand and supply, elasticity of demand, and income elasticity of demand across multiple scenarios. It includes calculations for changes in demand due to income increases, the impact of sales tax on equilibrium, and the relationship between goods through cross-price elasticity. Additionally, it addresses cost calculations in production and the classification of goods as normal or inferior, as well as luxuries or necessities.

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adam.nouri0206
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5 views15 pages

Economic Equilibrium and Elasticity Analysis

The document outlines various economic problems related to equilibrium price and quantity, consumer and producer surplus, excess demand and supply, elasticity of demand, and income elasticity of demand across multiple scenarios. It includes calculations for changes in demand due to income increases, the impact of sales tax on equilibrium, and the relationship between goods through cross-price elasticity. Additionally, it addresses cost calculations in production and the classification of goods as normal or inferior, as well as luxuries or necessities.

Uploaded by

adam.nouri0206
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd

Problem -1

Find the equilibrium price and quantity.


Calculate the consumer surplus and producer surplus at the equilibrium price.
Calculate the excess demand or excess supply when price is $18.
Calculate the excess demand or excess supply when price is $8.
Suppose that, following an increase in consumers’ income, demand for the good
increases by 2 units per month at each price level. Find the new equilibrium price and
quantity.
Suppose that (at original level of customers’ income) the government imposes a sales tax
of $4 per unit sold. Find the new equilibrium and tax revenue.
Price ($) Demand per month Supply per month
20 1 7
18 2 6
16 3 5
ice. 14 4 4
12 5 3
10 6 2
8 7 1
6 8 0
good
m price and

oses a sales tax


Chart Title
12

10

0
Price ($)
Problem -2 50
45
For given demand and supply equations 40

𝑃=50−2𝑄_𝐷 (𝐷𝑒𝑚𝑎𝑛𝑑)
35

𝑃=10+2𝑄_(𝑆 ) (𝑆𝑢𝑝𝑝𝑙𝑦)
30
25
20
Under assumption of perfect competition, calculate; 15
a. Consumer’s surplus 10
b. Producer's surplus
Problem - 3
The following information about the prices and quantities demanded
of two goods is given.

Calculate the price elasticities of demand for both goods.

Which good is more elastic?


Price ($) Quantity demanded
100 10
Good A
110 9
15 30
Good B
20 25
Problem – 4
The following information about the prices of good A and C and the
quantities demanded of good B and D.

Calculate the cross-price elasticity of the demand for good B and D


with respect to the price of good A and C, respectively.

Are A and B & C and D complements or substitutes?

𝑒_(𝑖𝑗 )>0 𝑓𝑜𝑟


𝑆𝑢𝑏𝑠𝑡𝑖𝑡𝑢𝑡𝑒𝑠

𝑒_(𝑖𝑗 )<0 𝑓𝑜𝑟


𝐶𝑜𝑚𝑝𝑙𝑒𝑚𝑒𝑛𝑡𝑠
Price A ($) Quantity of demanded of B
100 10
110 11

Price C ($) Quantity of demanded of D


100 10
120 8
Problem – 5
The table shows an individual’s income and expenditures on four
goods in each of two years (assuming prices were constant between
two years)

Calculate the income elasticity of demand for each good.


Determine whether the good are normal or inferior.
Determine whether the good are luxuries or necessities.
Year 1 Year 2
Good
Income = 1000 Income = 2000
A 150 600
B 250 200
C 300 700
D 300 500
Problem – 6
Given demand function

𝑄=10,000−10𝑃−𝑃^2

Find the price elasticity of demand when price is $10, $50 and $90.

Is demand inelastic, unit elastic or elastic at these prices?


Price ($)
10
50
90
Problem - 7

For given parameters, calculate average and marginal costs.


Find the cost elasticity of production.
Production (tonnes/day) Fixed cost ($) Variable cost ($)
1,000 1000 5,000
1,250 1000 6,488
1,500 1000 7,938
1,750 1000 9,313
2,000 1000 10,625
2,250 1000 12,162

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