1. Consider a market described by the following equations: La = a + BP Qs = Q + μP Where a, b, p and μ are parameters. Note that must be less than zero and the other parameters are positive. Answer the following questions. Solve for the equilibrium price and quantity. a. b. Now suppose a specific tax, T > 0, is imposed on this market that has to be paid to the government by sellers. Show in a clearly labeled supply and demand diagram what happens to the equilibrium effectively price received by sellers, and the price paid by buyers. Be sure to label the price received by sellers and the price paid by buyers in terms of P*(T) and T. Set up the equilibrium condition. Then solve for the price paid by buyers, the price received by sellers, and the after tax equilibrium quantity in terms of the parameters of the model and the tax amount T. C. d. Using calculus and the equation that you found for P* in part c, find an expression for the tax incidence on the buyers and determine its sign. Now, show that the formula you found for tax incidence on buyers can be found using elasticities at the market equilibrium before the tax is imposed. How does the tax incidence on buyers depend on the price elasticity of supply? Verify your result with a supply and demand diagram that varies the elasticity of supply at equilibrium. e.

The demand and supply functions for three (03) goods are given as follows: Dx = 100-3Px+Py+3Pz Dy = 80+Px-2Py-Pz Dz = 120+3Px-Py-4Pz Sx = -10+Px Sy = -20+3Py Sz = -30+2Pz  The equilibrium prices and quantities of all three goods are? The government decides to: a) Impose a 25% Tax on X? b) Impose a 5 Rs /unit Tax on Y? c) Give a 10% subsidy on good z? Analyze the impact of each of these policies separately on equilibrium prices and quantities? Analyze the impact of each of these policies separately on equilibrium prices and quantities? Provide theoretical justification (using diagrams) of all results obtained?

If the economy goes into a recession and incomes fall, what happens in markets? Prices of inferior goods go up because the demand for them increases Prices of normal goods go up because the demand for them increases Prices of all goods go down None of the other answers is correct Suppose the demand curve is given by P=10-Q and the supply curve by Q=P If the price in the market is given by $7, then The market is in equilibrium There is a a surplus in the market There is a shortage in the market Increasing the price will result in an increase in the quantity demanded

Problem 4. From number 2, draw another graph and call equilibrium Point A. Illustrate on the graph what will happen to the Supply curve when producers enter the market? Does the question refer to an increase, need help understanding the question.