Question

the supply and demand functions for a product are defined as Qs =100 and
Qd =50P^1/2 + 10
i)find the equilibrium price and quantity

ii)sketch a graph to show the results in (i)above

iii)Assume the equilibrium price is 80 pesewas (p=0.80)
find the PES and PED associated with a small increase in price from current price of 80 pesewas.
iv)What is the incidence of a tax of Ghs 0.6 imposed on the producer?

Answer 1

Solution:

i) Qs=Qd

$$50 \times {\sqrt{p}}+10=100$$

$$p=\frac {81}{25}$$

$$p=3.24$$

$$Q=100$$

ii)

iii)

$$PES=Qs{\prime}(p) \frac {p}{Qs(p)}=0$$

$$PED=Qd{\prime}(p) \frac {p}{Qd(p)} = 0.41$$

iv)

$$0.6\times 100=60$$