# ps3x101_s03_answer - Econ 101 Spring 2003 Wissink PS3-XtraQ...

This preview shows pages 1–2. Sign up to view the full content.

1. Recall 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 Demand Equation: X=500-2P Supply: X=-25+P Econ 101 - Spring 2003 - Wissink PS3-XtraQ ANSWERS a) Find the market equilibrium price and number of tires traded, i.e., P* and X* and graph the situation. Demand equation: X=500-2P. This implies that P D = 250-0.5X. Supply equation: X = -25+P. This implies that P S = X+25. Equating the two prices, we get 250-0.5X* = X*+25. This implies that X* = 150. Substituting into either of the price equations, we get P* = 175. (See graph on next page.) b) Find the own price elasticity of demand and own price elasticity of supply at the market equilibrium. Use the "exact point formula." Own Price elasticity of demand at P* = 175 is (2)*(175/150) = 7/3 Own Price elasticity of supply at P* = 175 is (1)*(175/150) = 7/6 c) Suppose the mayor of Cortland decides to place a per unit tax of \$5.00 per tire on each tire sold. The mayor decides to collect the tax revenue from the suppliers of tires. Determine the new market situation and figure out the economic price incidence of the tax

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 03/27/2009 for the course ECON 1110 taught by Professor Wissink during the Fall '06 term at Cornell.

### Page1 / 3

ps3x101_s03_answer - Econ 101 Spring 2003 Wissink PS3-XtraQ...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online