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**Unformatted text preview: **d. Suppose the government sets a price ceiling of $80. What will be the resulting shortage (in millions)? Problem 3 Suppose that a country produces and consumes goods A and B. The domestic supply and demand of good A is given by: ? ° = 15.90 + 0.72? ± + 0.05? ² ? ³ = 0.02 − 1.8? ± + 0.69? ² Where ? ± , ? ² are the prices for good A and good B respectively. a. Suppose the price of B is $50. What is the free-market price for good A? (round to pennies: $X.xx) b. Graphically illustrate how the equilibrium prices and quantities of good A change with different prices for good B. Hint: in one graph ? ± , ? ± draw the demand and supply functions for two different values ? ² c. Based on the information given in the problem, is good A a complement or substitute for good B in consumption? d. Now suppose that unlimited quantities of good A can be imported at $4.5. What will the level of imports be? Illustrate graphically....

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- Winter '07
- Weber
- Price Elasticity, Supply And Demand, Stanford University, $4.5