The demand and the supply of timber for construction in Australia are given by QD =100 – 20P QS = 5P We assume the market is perfectly competitive. 2.1. Compute the equilibrium price PCE and quantity QCE. 2.2. Plot on a graph: the demand curve, the supply curve, and the equilibrium price and quantity. 2.3: Calculate the price elasticity of demand and price elasticity of supply at the equilibrium price and quantity.
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The
QD =100 – 20P
QS = 5P
We assume the market is
2.1. Compute the
2.2. Plot on a graph: the demand curve, the supply curve, and the equilibrium price and quantity.
2.3: Calculate the
2.4. Calculate the
2.5. Suppose there are many construction companies collapsed (and left the market), use a demand and supply graph to explain how the collapse affects the equilibrium price and quantity.
2.6. Consider the setup in 2.1-2.4, and suppose there is a strike of loggers, which change the supply to QS = 4P. Calculate the new
2.7. Calculate the change in the consumer surplus caused by the strike in 2.6.
2.8. After the strike in 2.6, suppose the government subsidizes the buyers s dollars for every unit they purchase. Write the price paid by consumers in the equilibrium as a function of s. Would the government be able to use the subsidy to achieve the surplus before the strike, which is computed in 2.4. If no, explain why. If yes, what should be the value of s?
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