The demand for scarves depends on the weather during winter. If it is a heavy winter, then the demand for scarves is QH (P) = 84-3P and if it is a light winter the demand for scarves is QL(P) = 85-4P. The supply of scarves is Qs(P) = 4P - 7. a) Find the equilibrium price and quantity in each case. b) Calculate the elasticity of demand and the elasticity of supply when P = 10. Comment on your results. c) In separate graphs, draw the two cases and depict the consumer and producer surplus. Calculate the surpluses in all cases. d) The government wants to limit the production of scarves and sets a quota of 42 scarves. What is the effect of the quota in each case? In separate graphs, draw the effect of the quota. Calculate the effect of the quota on welfare (consumer surplus etc).

The demand for scarves depends on the weather during winter. If it is a heavy winter, then the demand for scarves is QH (P) = 84-3P and if it is a light winter the demand for scarves is QL(P) = 85-4P. The supply of scarves is Qs(P) = 4P - 7. a) Find the equilibrium price and quantity in each case. b) Calculate the elasticity of demand and the elasticity of supply when P = 10. Comment on your results. c) In separate graphs, draw the two cases and depict the consumer and producer surplus. Calculate the surpluses in all cases. d) The government wants to limit the production of scarves and sets a quota of 42 scarves. What is the effect of the quota in each case? In separate graphs, draw the effect of the quota. Calculate the effect of the quota on welfare (consumer surplus etc).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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