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Unformatted text preview: Q D = 1 P . What price will maximize revenue? : Revenue is P × D ( P ) = 1 , regardless of the price, so all prices maximize revenue. 3. Suppose the supply and demand curves for gasoline are given by Q D = 91 4 P Q S = 2 P (a) What is the equilibrium price and quantity? : P * = 4 and Q * = 8 . (b) What is the price elasticity of demand and supply at the equilibrium? : ± = P Q dQ D dP = 4 8 (1 4 ) =1 8 and η = P Q dQ S dP = 1 2 2 = 1 . (c) Suppose the government impose a $0.9/gallon tax on gasoline, paid by buyers. Solve for the new equilibrium. What portion of the tax is is paid by consumers, and what portion by sellers? : P Dt = P S , where t = 0 . 9 , hence 91 4 P D = 2 P s = 2( P D. 9) which implies P D = 4 . 8 and P S = 3 . 9 . After tax quantity is 7 . 8 . 1...
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This note was uploaded on 10/03/2011 for the course ECON W3211 taught by Professor Elmes during the Fall '09 term at Columbia.
 Fall '09
 Elmes
 Microeconomics

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