E. Recall part a (The tires) Calculate the CS & PS. Hint; you need to set Qs=0 & Qd=0 to find the intercept and calculate the CS, PS. you need to set Qs=0 & Qd=0 then solve for P to find the intercept and calculate the CS, PS. Where the CS is the area between the intercept for demand and the equilibrium price you found on part a. Do not forget that this area is a triangle so carefully calculate the area. The same thing for PS. F. Now, if the government impose sales tax equal to 5%, what is the CS, PS, government revenue and DWL and show this on the graph?
Q1. PLEASE ANSWER THE SUP PART E AND F
Consider an example of the vehicle tires; if the supply and demand are:
Qs = - 500 + 8p ; Qd = 500 –2 p
Solve:
A.
Equilibrium price
Qd = Qs
500-2P = -500+8P
P = 100
Equilibrium quantity = 500-2(100)
= 500-200
= 300
Tot revenue = 100*300
= 30000
B. If there were a price celling equal to 120 SAR per each tire imposed, calculate the price elasticity of demand? Does this consider elastic, inelastic or unit elastic? Also, calculate the total revenue?
Now, with
Quantity demanded= 500-2(120)
= 500-240
= 260
elasticity if demand = Percentage change in quantity/ percentage change in price
= 40/300*100/20
= 0.67
Total revenue = 260*120
= 31,200
C. Now consider the vehicle battery; if the supply and demand is:
i. Qs = - 100 + 3p ; Qd = 1100 – 9p, calculate the equilibrium price and equilibrium quantity. Also, calculate Total Revenue.
Qs = -100+3p
Qd=1100-p
Equilibrium Condition: Qs = Qd
-100+3p=1100-9p
12p=1200
P=100
Q=200
Total revenue: P*Q = 100*200
TR = 20000
ii) If there were a price celling of 120 SAR imposed per each pair of battery, calculate the price elasticity of demand? Do the battery prodduct consider elastic, inelastic or inelastic or unit elastic? Also calculate total revenue.
Ed at 120 SAR
Ed = (Aq/ Ap) (P/Q)
Aq/Ap = -9
P = 120
Q= 1100 – 9*120 = 20
Ed = (-9) (120/20) = -54
Since Ed >1 so Elastic
TR =P*Q =120*20=2400
D. Compare the total revenue for the tires and the total revenue you found for the battery. Which one of product’s total revenue has been increased after the price have been increase and why? Explain in words and show the difference in numbers as well.
total revenue for the tires=31200 SAR
the total revenue for the battery=2400 SAR
total revenue of tires has been increased after the price have increase as its elasticity is less than 1 so here %change in quantity demanded is less than the % change in price so due to more rise in price, TR has increased and on the other hand elasticity of battery is more than 1 so quantity demanded falls drastically due to small change in price so its TR falls.
E. Recall part a (The tires) Calculate the CS & PS. Hint; you need to set Qs=0 & Qd=0 to find the intercept and calculate the CS, PS. you need to set Qs=0 & Qd=0 then solve for P to find the intercept and calculate the CS, PS. Where the CS is the area between the intercept for demand and the equilibrium price you found on part a. Do not forget that this area is a triangle so carefully calculate the area. The same thing for PS.
F. Now, if the government impose sales tax equal to 5%, what is the CS, PS, government revenue and DWL and show this on the graph? Hint; price paid by the buyer equal 104 SAR and price received by seller equal 99 SAR, the difference is the tax per tires. The intercept points for the supply and demand on this part are the same as the ones on part e. To find the quantity, plug either the price for the buyer on the demand curve formula or the price for the seller on supply curve formula. Also, remember CS, PS & DWL have triangle area, whereas tax revenue has rectangular area. Graph this manually so you can easily find the answer.
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