1.

Suppose the demand and supply curves of salt are given by:qD = 1,000 − p qS = 700 + 2p(a) Find the equilibrium price and quantity.(b) Now, suppose that the price of an input that used to produce salt has increased so, that the new supply curve isqS = 400 +2pHow does the equilibrium price and quantity change? Does the change conform to your expectation?(c) Suppose the government has imposed a tax of Rs 3 per unit of sale on salt. How does it affect the equilibrium price and quantity?

Answer»

Suppose the demand and supply curves of salt are given by:



qD = 1,000 − p qS = 700 + 2p



(a) Find the equilibrium price and quantity.



(b) Now, suppose that the price of an input that used to produce salt has increased so, that the new supply curve is



qS = 400 +2p



How does the equilibrium price and quantity change? Does the change conform to your expectation?



(c) Suppose the government has imposed a tax of Rs 3 per unit of sale on salt. How does it affect the equilibrium price and quantity?



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