PS2 Hint-1

PS2 Hint-1 - equilibrium which is what we are looking for...

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Helpful Hints for Problem Set 2, Question 9 Question 9 is tricky. For part a), you want to follow the same steps that we used in Question 34 from Perloff: take the total derivative, solve for the change you’re interested in, and plug in values to get a final answer. Your answer will still have a p in it because the demand function is quadratic. Do not be alarmed. This is normal. To find the impact of Y and p o on Q , simply take the total derivative of D with respect to X , where X is your variable of interest (and again, plug in values, includ- ing those you found earlier). This will give you the change in the quantity demanded in
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Unformatted text preview: equilibrium, which is what we are looking for. You do not need to take the total derivative of the entire equation D = S as in the previous case. For part b), the book is your friend. Read the sections on taxes, looking especially closely at Equation (2.27). The heavy lifting was done in part a), now you just need to use those values to calculate the incidence of the tax on consumers and firms, respectively. Good luck!! 1...
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