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Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter5: Markets In Motion And Price Controls

Section: Chapter Questions

Problem 10P

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Question

The demand and supply functions for three (03) goods are given as follows:

D_x = 100-3P_x+P_y+3P_z

D_y = 80+P_x-2P_y-P_z

D_z = 120+3P_x-P_y-4P_z

S_x = -10+P_x

S_y = -20+3P_y

S_z = -30+2P_z

Determine the equilibrium prices and quantities of all three goods.

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 seperately on equilibrium prices and quantities.

Also calculate changes in consumer and producer surpluses, and the amount of revenue earned by the government.

Provide theoretical justifications (using diagrams) of all results obtained.

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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