UW-River Falls

College of Business and Economics

Name Matt Mickolichek
Row # ______

Dr. P. Ngoboka
Economics 301
Assignment #1
1.

(Show all your work!)

Assume the following demand and supply functions:

Qd = 60 - 2P
Qs = -12 + 4P
(a) What are the equilibrium price and quantity?
Qd=Qs = 60 2P = -12 + 4P = 72 = 6P = P = 12
Plug in P = Q = 60 2(12) = 36
P=12,Q=36
(b) Assume that supply shifts to
Qs = -24 + 4P.
What are the new equilibrium price and quantity?
60 2P = -24 + 4P = 84 = 6P = P = 14
Q = 60 2(14) = 32
P=14,Q=32

2.

The following are the demand and supply functions of a

hypothetical product.
Qd = -.6P + 8
Qs = .4P -2
(a) Find the equilibrium price and quantity.
-.6P + 8 = .4P 2 = 10 = P
Q = .4(10) 2 = 2
P=10,Q=2
(b) Calculate the price elasticity of (i) demand and (ii) supply at
the equilibrium point.

-23.

The following are the demand and supply function for

beer.
Qd = 25 - P
Qs = -20 + 4P (P = price/barrel).
(a) What are the equilibrium price and quantity?
25 P = -20 + 4P = 45 = 5P = P = 9
Q = 25 (9) = 16
P=9,Q=16
(b) Is the demand for beer elastic or inelastic?
(Hint: Compute price elasticity of demand at equilibrium!)

(c) Suppose a price ceiling is imposed by the government at

$8.00/barrel.
( i)

What is the new quantity sold?

Qs = -20 + 4(8) = 12

(ii)

Is there a shortage or surplus in this market?

much is the shortage or surplus?
Qs = 12
Qd = 25 8 = 17

How

There is a shortage of 5.
(d) If the government imposes an excise tax of $4.00/barrel on
beer,
( i)

What is the effect of the excise tax? (Hint:

the new equilibrium price and quantity.)

Compute

(ii)

How much tax revenue does the government collect?