COMM 295 Assignment 1

# 1000 50p a derive an expression for the market supply

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= 1000 50p. a) Derive an expression for the market supply schedule for consulting services and graph it together with the market demand schedule. (Hint: Market supply is just 20 times individual supply.) When constructing your graph allow the horizontal (quantity) axis values to range from 0 to 1200 in increments of 100 and the vertical (price) axis values to range from 0 to 30 in increments of 5. Please carefully label your graph and draw it to scale as best you can. Show the equilibrium point on the graph. (3 pts) b) Use algebra to calculate the equilibrium price and quantity of consulting services. (3 pts) c) The government has decided to tax consultants \$5 for every hour of consulting service that they provide. Draw a new graph and show how the tax affects the equilibrium prices for both buyers and sellers. Also show how the equilibrium quantity is affected. (4 pts) d) Based on your graph from part (c), do you think that the degree of price pass through for consumers is greater than 50 percent? That is, does the tax of \$5 per hour result in more than a \$2.50 per hour increase in the consumers’ price? ( 3 pts) d) Use algebra to obtain expressions for equilibrium price for consumer s if the tax is set equal to t per hour of consulting service provided. (The expression you derive will be a function of t). What can be said about the degree of tax pass through for consumers? (3 pts) e) Suppose the government plans to raise the tax. Draw a diagram and use it to explain why the tax revenue for government will initially increase but will eventually decrease if the government continues to raise the tax. (4 pts)

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3 Question 2: Demand Analysis A well-known producer of pizzas decided to analyze the demand for thin crust pizzas. The regular price for pizza was \$7.00 per pizza but this price was varied using temporary in-store discounts that varied by supermarket. Thus, for example, in one supermarket a temporary in-store discount of \$1.00 was available, making the net price \$6.00 per pizza. The producer was able to track the number of pizzas purchased per 1000 customers who shop at each supermarket, yielding the following data. Quantity Price 21.0 \$7.00 22.5 \$6.50 27.0 \$6.00 28.5 \$5.50 24.0 \$5.00 28.5 \$4.50 33.0 \$4.00 34.5 \$3.50 a) Copy this data in a spreadsheet (preferably Excel 2007 or Excel 2010). Put quantity in column A and price in column B. Create a scatterplot chart showing these points and generate a linear trendline through these points. (If you do not know how to create a scatterplot and make a trendline using Excel, read the instructions posted on the course website.) Using Excel, l abel the axes and put the title “Pizza Demand” on the chart. Print out the chart as an “embedded chart” so that it appears on the same page as the data. (4 pts) b) Excel creates the trendline by using the ordinary least squares regression technique.
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