Answer to Question #162090 in Microeconomics for SYEDA ZAINAB

Question

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

D_x=100-3P_x+P_y+3P_z

D_y=80 +P_x-2P_y-2P_z

D_z=120+3P_x-P_y-4P_z

S_x=-10+P_x

S_y=-20=3P_y

S_z=-3+2P_z

Q1: Determine the equilibrium prices and quantities of all three goods.

·  The government decides to:

a.  Impose a 25% tax on X

b.  Impose a 5Rs unit Tax on Y

c.  Gives a 10% subsidy on good Z

· Analyze the impact of each of these three policies separately on equilibrium prices and Quantities.

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

Q2: Repeat this exercise when polices (a, b),(b,c) & (a, b,c) are jointly implemented. Which policy choice is best? Why?

Q:3 Provide theoretical justification (using diagrams) of all results obtained.

 

Answer 1

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