section2_18Sept08_Exam

section2_18Sept08_Exam - sub-2 P comp 4 Inc Q s = 10 P 3...

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AEM 4150 section 2 18 September, 2008 Question 1 The market demand and supply for rental cars in the United States and Canada is the same and is given by the following equations: Q d = 500 – 2P Q s = 100 + 6P Where Q d is quantity demanded, Q s is quantity supplied and P is the rental price per day. Answer the following questions. (a) What is the equilibrium price and quantity in the US and Canada for rental cars? (b) Suppose the US government wants to set a ceiling price of $40 per day. What will happen to the demand for rental cars in the US? Explain and illustrate with a graph. (c) Suppose the Canadian government wants to set a ceiling price of $55 per day. What will happen to the demand for rental cars in Canada? Question 2 You are given the following demand and supply equations for a product Q d = 300 – 5 P +10 P
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Unformatted text preview: sub-2 P comp +4 Inc Q s = 10 P + 3 Wea – 5 Cost + 2 Tech Where Q d : quantity demanded P: price of product P sub : price of product’s closest substitute (average = 2) P comp : price of product’s closest complement (average = 40) Inc: income (average = 25) Q s : quantity supplied Wea: weather index (average = 10) Cost: cost producing Q (average = 2) Tech: technology variable (average = 10) (a) Solve for the equilibrium quantity and price given the averages for the supply and demand variables given in the parentheses (b) The government decides to impose a per unit tax on the buyer of this item equal to $3. Solve for the new equilibrium price and quantity (hint: convert the supply and demand functions into the price inverse form) (c) What is the tax incidence between consumers and producers of this product?...
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