ps2x101_s03 - e Suppose there was a quota placed on this...

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Consider the following two equations that describe market activities in the Cortland NY tire market. Let X=number of tires per month and P=price per tire Equation A: X=500-2P Equation B: X=-25+P Econ 101 - Spring 2003 - Wissink PS2-XtraQ Due Thursday 2/13 at the start of class. Place in TAs box in the back Late problem sets will not be accepted. a) Which equation would represent the demand curve and why? b) Which equation would represent the supply curve and why? c) Find the market equilibrium price and number of tires traded, i.e., P* and X*. d) Graph the equilibrium and label your graph carefully.
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Unformatted text preview: e) Suppose there was a quota placed on this market. What values for the quota would make the quota binding? f) Suppose the quota is set at X quota = 75. Carefully and completely describe the consequence of this quota on both demanders and suppliers. Show its effect in your diagram. g) Suppose Ima Smarty insists that a better policy is to impose a price floor that is set equal to the market price you would get with the quota. Analyze Ima's suggestion using your graph and the demand and supply equations....
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