Q3. Suppose a perfectly competitive market is in a long run equilibrium at a price of $5. At that equilibrium, own price elasticity of demand is 0.6 and own price elasticity of supply is 1. The government then introduces a $6 tax in this market. Which of the following COULD be the new SR and LR demand (buyer) and supply (seller) prices? a) SR: PD = $9 & PS = $3. LR: PD = $11 & PS = $5. b) SR: PD = $7 & PS = $1. LR: PD = $11 & PS = $5. c) SR: PD = $9 & PS = $3. LR: PD = $10 & PS = $4. d) More than one of the above COULD be the new SR and LR prices.

Q3. Suppose a perfectly competitive market is in a long run equilibrium at a price of $5. At that equilibrium, own price elasticity of demand is 0.6 and own price elasticity of supply is 1. The government then introduces a $6 tax in this market. Which of the following COULD be the new SR and LR demand (buyer) and supply (seller) prices? a) SR: PD = $9 & PS = $3. LR: PD = $11 & PS = $5. b) SR: PD = $7 & PS = $1. LR: PD = $11 & PS = $5. c) SR: PD = $9 & PS = $3. LR: PD = $10 & PS = $4. d) More than one of the above COULD be the new SR and LR prices.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter6: Elasticities

Section: Chapter Questions

Problem 20P

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