Mark has been working at shop-mart for the past 10 years. despite working hard, he is unable to get what he wants or needs done,
2 answers:
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Answer:
If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to <u>rise and the equilibrium quantity to stay the same</u>.
Explanation:
Perfectly inelastic demand curve indicates the quantity demanded for the life-saving medicine remains the same or does not change in response to a change in price.
Since a part of the law of supply states that the lower the quantity supplied, the higher the price; a reduction in the supply of the life-saving medicine will increase its price.
The combining effect of the two above will lead to an increase in the equilibrium price while the equilibrium quantity will remain the same as it will not respond to the change in price.
The attached graph explains this more clearly. In the graph, the demand curve DD is used to represent the perfectly inelastic demand curve for the life-saving medicine. Therefore, the quantity remains at q no matter the changes, either increase or decrease, in price. Movement from the supply curve S1 to S2 indicates a reduction in supply of the life-saving medicine which causes an increase in the equilibrium price from Po to P1 while the equilibrium quantity stays at q.
This therefore shows that if the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to <u>rise and the equilibrium quantity to stay the same</u>.
Answer:
8,000
Explanation:
Initially, the market is at equilibrium E1: P = P1; Q = Q1
Assume that the tax is imposed, the market will move to when Q = Q2; the price buyers pay is greater than P1, the price producers receive is less than P1.
We have: <em>Price buyers pay - Price producers receive = Tax</em>
As the tax decreases the equilibrium quantity by 700 headphoes
=> Q1 - Q2 = 700
=> Q2 = Q1 - 700
=> Q1 + Q2 = Q1 + Q1 - 700 = 2Q1 - 700
Before tax:
+) the producer surplus (PS) is equal to the area formed by supply curve S, price line P1 and the vertical axis
=> PS1 = Area of BE1P1
+) the consumer surplus (CS) is equal to the area formed by demand D, price line P1 and the vertical axis
=> CS1 = Area of AE1P1
=> The wellness before tax = CS1 + PS1 = Area of AE1B
After tax:
+) the producer surplus (PS) is equal to the area formed by supply curve S, price line (Price producers receives) and the vertical axis
=> PS2 = Area of BDE
+) the consumer surplus (CS) is equal to the area formed by demand D, price line (price buyers pay) and the vertical axis
=> CS2 = Area of ACF
+) The Tax revenue = Tax * Q2 = (Price buyers pay - Price producers receive) * Q2 = CD * DE = Area of CFDE
=> The wellness after tax = PS2 + CS2 + Tax Revenue = BDE + ACF + CDEF
=> Deadweight loss = Wellness before Tax - Wellness after tax = Area of EFE1 = 2,800
The tax decreases consumer surplus by $4,000.00, and it decreases producer surplus by $6,800.00
So that:
+) CS1 - CS2 = 4,000
=> Area of AE1P1 - Area of ACF = Area of CFE1P1 = 4,000
+) PS1 - PS2 = 6,800
=> Area of BE1P1 - Area of BDE = 6,800
=> Area of EDP1E1 = 6,800
=> Area of CFE1P1 + Area of EDP1E1 = 4,000 + 6,800
=> Area of CFE1ED = 10,800
Area of CDEF + Area of EFE1 = Area of CFE1ED = 10,800
=> Area of CDEF + 2,800 = 10,800
=> Area of CDEF = 8,000
=> Tax revenue = 8,000
