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).

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter5: Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 1.1P: (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of...

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Question

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
Q₁(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).

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