1. The supply and demand of desk fans are given by the two functions below. Prices are expressed in UK Pounds (£):
D: Q = 120- 2P
S: P = -20 + 1.5Q
a) Calculate the equilibrium price (P*) and Quantity (Q*). [4 Marks]
b) Find the PED at this equilibrium level. [2 Marks]
The Government are concerned about bulk buying or fans in hot weather and so decide to impose a tax on this product. This means that supply is now given by P = -20 + 3.5Q c)
C) Calculate the change in Consumer Surplus as a consequence of this taxation. [5 Marks]
d) Sketch out the two new equilibrium points (before and after taxation). [4 Marks]
"120-2p=-20+1.5p"
"p*=40"
"Q*=40"
"P_{ED}=-2\\times \\frac{40}{40}=-2"
"Q_S^\/=\\frac{2}{7}p+\\frac{40}{7}"
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