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Q= -30+2Px- 4Pz, putting values we get

a) -30+ 2*600-4*60= 930


b) -30+ 2*80-4*60=-110. Since quantity cannot be negative I would put this as 0, trick question!!
c) Supply function Q =-30+2Px-4*60= 2Px-270
Supply function shows supply as a function of price
Inverse supply function shows price as a function of supply.
So Q=2Px-270 changes to P=(Q+270)/2

Putting various values we get the P and Q values as below. Same table has been used to plot the
graph

Q 30 0 130 230
P 150 135 200 250
a) Substitute of a good happens when you opt for product A instead of B if price of B goes up.
They complement if demand for A goes up if price of B goes down.
Here Pz leads to increase in demand of X. so Z is a substitute.
For Y since price increase leads to a drop in demand of X, it means Y is a complement to X
b) Normal good is where demand increases as income increases. If demand goes down with
income, its inferior good. In this case demand is increasing with increase in income. So X is a
normal good
c) Putting values
Q= 6000- (5230/2)-6500+9*100+(70000/10)= 4785
d) Demand function is what is given by putting values of Py=6500 and Pz=100 and M=70000
Q=6000-Px/2-6500+9*100+(70000/10)=> Q= 7400-Px/2
Inverse demand means make Px= ….
So Px= (7400-Q)*2

Q 0 400 1400 4400


P 3700 3500 3000 1500
a) Equilibrium means demand =supply
So 60-P=P-20, solving for this, P=80/2=40
b) If price floor of 50 is fixed then minimum price is 50.
At a price of maximum demanded quantity= 60-50=10

Also at 50, supplied quantity =50-20=30

Surplus =s price floor*(supplied quantity-demanded quantity)=50*(30-10)=50*20=100

C) at a price ceiling of 32, maximum supplied quantity is 32-20=12


At this quantity price which customer is willing to pay is 60-12=48
Shortage=price ceiling*(quantity demanded-quantity supplied)=32*(48-12)=1152
Full economic price paid by consumer in case of floor is calculated by putting this ceiling price
supply in the demand function. At this ceiling of 32, the supplied quantity=12
Now taking the demand equation 60-P’=Q’, we put Q=12 and get P’=48,
So full economic cost of consumer=P’=48
If they ask whats nonpecuniary price, it is defined as P’-ceiling=48-32=16

a) equilibrium is when demand quantity=supplied quantity

14-P/2=P/4-1, solving we get P=20, and putting this value of P we get Q=4

b) Chee this video


https://www.youtube.com/watch?v=FGnHv4PrjTg

now demand Q=14-(P/2)


but for the price that suppliers receive he has to pay 12 to govt as tax.
So the supply Q=1/4(P-12)-1, solving the two we get P=24, solving for this Q=14-24/2=2
c) Since quantity sold is 2, govt collects 12*2=24

d) Quantity solved at P=8 with 12 tax is Q=4. So tax is 12*4=48

a) Current equilibrium is -14+P=85-2P, meaning P=99/3=33, demanded quantity= 85-2*33=19

Now if govt imposes a price of 38, quantity demanded=85-2*38=9

At the price of 38, quantity supplied= -14+38=24

If govt promises to buy unsold units (24-9)=15 govt will incur 38*15=570

b) Page 61 and 62 in book. See diagram to see what is deadweight loss


=area of blue triangle as replicated from book

Equilibrium quantity was 19, which is Qe, Floor demand quantity=9=Qd,


Pf=floor price=38, pe=equilibrium price was 33 above. So the base of the triangle is size 10.
Height of triangle is 19-9=10. So lost social welfare (deadweight loss)=1/2*10*10=50
Equating demand and supply 210-1.5P=2.5P-150, meaning P=90, Q=75

At what max price the quantity demanded will be 0. It will be if 210-1.5P=Q=0, solving we get 140

Similarly at what min price, the seller will not supply anything. That is 2.5P-150=Q=0, P=60

So buyers are willing to pay max 140 and are getting the same at equilibrium price of 75.

Similarly sellers are willing to sell at 60 but are getting equilibrium price of 75.

So consumer surplus per unit= 140-90=50 and producer surplus per unit=90-60=30.

Make the below graph urself. This is from chegg. (kya din aa gaye re. master aaj student bana hua hai)

Haan to consumer surplus and producer surplus are shaded areas.

Consumer surplus =1/2*75*50=1875 and producer surplus=1/2*75*30=1125


Using the current equation price of equilibrium is

350-4P=4P-130, solving P=480/8=60

Now if new tax policy comes the equilibrium price is defined as

4.3P-130=350-4P, solving we get P=57.83. so per unit reduction =60-57.83=2.12

Price gouging means higher price charged by retailers and suppliers during a period of shortage due to
natural calamity etc. People also end up stocking up these essential commodities immediately before
such a calamity. For example, people in US overpurchased toilet paper at the start of the covid
pandemic/lockdown. Price gouging statutes against price rise mandate that the price during such a
period has to be in line with the last 30 day price trend of the commodity.

While in theory, such statutes seem to be right, it can have adverse economic effects. Since price cannot
be increased, people end up hoarding such commodities. This may also lead to shortages. Now, to plug
this shortage, even if a retail gets fresh supply, there is a constraint not to increase the selling price.
During the time of calamity, the suppliers to these retailers might charge additional charges. However,
the retailer cannot pass on this additional cost to customers due to price gouging limitations. This leads
to continued shortage for majority of the population- particularly the ones who could not afford to
hoard when the stock was available. Further, even if there is some assurance that retails can pass on
‘justified’ additional cost to customers during such times, it is always open to debate and litigation,
thereby further discouraging retailers to get additional supplies at a higher cost of supply. Additionally, it
is often difficult to derive the ‘right’ price of commodities which di not have sufficient history of sales-
for example sale of face masks when the pandemic started. There was no past data to ascertain the
price which would be acceptable. In summary a price gouging statue cause more economic harm than
the social good it intends to bring and the same has been attested in multiple surveys with economists.

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