Homework Answers
Answer
a. Quantity 170 Price 30
At equilibrium Supply quantity = Demand Quantity
Qd=Qs
or,200-P=20+5P
or,P=30
200 - 30 = 170 = Q
b. A social loss of 6 per cigarette will shift the supply curve
the new supply curve will be Q=20+5P-6=14+5P
The supply curve should be the green curve here, but instead its the blue curve.
c.. Quantity 169 Price 31
At socially efficient scenario
14+5P=200-P
thus P=31
200-31=169=Q
d.
Policy 1 :Price Ceiling at P =31
This will shift the price up and lower the quantity
Policy 2: Impose a per unit tax increase of $1
This will shift the price up and lower the quantity
(Please consider giving an upvote if you find it useful)
Price 40 + Supply Externality (169, 31) Supply 30 (170, 30) Demand 120 10 o 160 170 180 Quantity
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