ECON 201 SEU Equilibrium Price & Demand and Supply Worksheet
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Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Assignment 1
ECON201 (1st Term 2021-2022)
Deadline: 18/10/2021 @ 23:59
Course Name: Macroeconomics
Students Name:
Course Code: ECON201
Students ID Number:
Semester: I
CRN:
Academic Year: 1442/1443 H, 1st Term
For Instructors Use only
Instructors Name: Eman Alshami
Students Grade:
/5
Level of Marks: High/Middle/Low
Instructions PLEASE READ THEM CAREFULLY
This assignment is an individual assignment.
Due date for Assignment 1 is by the end of Week 6 (18/10/2021)
The Assignment must be submitted only in WORD format via allocated folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced)
font. No pictures containing text will be accepted and will be considered
plagiarism).
Submissions without this cover page will NOT be accepted.
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Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Assignment Purposes/Learning Outcomes:
After completion of Assignment-1 students will able to understand the
LO 1.1: Define the institutional framework of macroeconomic policymaking.
Assignment 1 Questions: Week 1 to Week 5: – [5 Marks]
Q1. Illustrates the market for chocolate bars has the following demand and supply
schedules:
[1.5 Marks]
Price
$3
$4
$5
$6
$7
$8
Quantity
Demanded
111
100
80
64
51
37
Quantity
Supplied
26
53
80
92
111
120
a. Graph the demand and supply curves. What is the equilibrium price and
quantity in this market?
b. If the actual price in this market were above the equilibrium price, what would
drive the market toward the equilibrium?
c. If the actual price in this market were below the equilibrium price, what would
drive the market toward the equilibrium?
Q2. Illustrates the market for pizza is characterized by a downward-sloping demand curve
and an upward-sloping supply curve.
[1.5 Marks]
a. Draw the competitive market equilibrium. Label the price, quantity, consumer
surplus, and producer surplus. Is there any deadweight loss? Explain.
b. Suppose that the government forces each pizzeria to pay a $1 tax on each pizza
sold. Illustrate the effect of this tax on the pizza market, being sure to label the
consumer surplus, producer surplus, government revenue, and deadweight loss.
How does each area compare to the pre-tax case?
c. If the tax were removed, pizza eaters and sellers would be better off, but the
government would lose tax revenue. Suppose that consumers and producers
voluntarily transferred some of their gains to the government. Could all parties
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Ministry of Education
Saudi Electronic University
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College of Administrative and Financial Sciences
(including the government) be better off than they were with a tax? Explain
using the labeled areas in your graph
Q3. Suppose that a market is described by the following supply and demand equations:
[2 Marks]
QS = 2P
QD = 300 P
a. Solve for the equilibrium price and the equilibrium quantity.
b. Suppose that a tax of T is placed on buyers, so the new demand equation is
QD = 300 (P + T).
Solve for the new equilibrium. What happens to the price received by sellers,
the price paid by buyers, and the quantity sold?
c. Tax revenue is T X Q. Use your answer to part (b) to solve for tax revenue as a
function of T. Graph this relationship for T between 0 and 300.
d. The deadweight loss of a tax is the area of the triangle between the supply and
demand curves. Recalling that the area of a triangle is 1 ?2 x base x height, solve
for deadweight loss as a function of T. Graph this relationship for T between 0
and 300. (Hint: Looking sideways, the base of the deadweight loss triangle is
T, and the height is the difference between the quantity sold with the tax and
the quantity sold without the tax.)
e. The government now levies a tax on this good of $200 per unit. Is this a good
policy? Why or why not? Can you propose a better policy?
Answer:
Q1:
a.
The equilibrium price and quantity according to the graph is $5 and
80 units respectively.
b. The vendor of chocolate bars would have to reduce the price in
order to move some of the surplus inventory out of the shop. Thus,
there will be a rise in demand for the product, and the price will
continue to decrease until equilibrium is achieved.
c. There would either be a scarcity of pizzas available or an excess
of demand for them. If the pizza vendor increases his pricing, the
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
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College of Administrative and Financial Sciences
demand will decrease, and the number of pizzas available will
increase, bringing the situation back into balance for all parties.
Q2.
a. Equilibrium normally occurs at the place of connection of both
the demand and supply curves. The sellers and buyers in the
market enjoy before the government imposes taxation. This is
known as producer and customer surplus.
From the graph above, the equilibrium quantity and price are
denoted by Q* and P* respectively, values that have been derived
from the crossing point of the request and supply bends within
the market. The shopper overflow is indicated by the green coloured
locale over the harmony cost and beneath the request bend. The
maker excess on the other hand is indicated by the yellow coloured
triangle underneath the balance cost P* and over the supply bend.
There are no deadweight misfortunes included within the advertise
situation as there no taxations by the government, in this way there’s
no alter within the harmony cost level.The deadweight loss refers to
the loss incurred in the total surplus as a result of the taxation by the
government (Vu et al., 2018).
b) The diagram shows the taxation on the sale of pizza leads to a rise
within the showcase cost that the buyers pay from P* to P b and a
drop within the cost gotten by dealers from P* to costs P s. This
creates a wedge between the advertise cost that’s paid by the buyers
and the amount gotten by the dealers. Other than, there’s a drop
within the amount of pizzas sold from the Q* to Q 1. Due to the
inconvenience of assess, the customer surplus falls from the area A,
while the maker overflow falls, from the range to the zone B. the
whole excess, that’s , the whole of the shopper and the maker
overflow, falls from the zone to the zone. The government gains
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
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College of Administrative and Financial Sciences
assess income, which appeared by the yellow-colored rectangle,
that is,the item of the tax-rate and the amount sold. It has a range
that rises to the range. Deadweight misfortune happens when the
drop within the total surplus is not completely captured by an
increment
within
the tax income (Asadinejad & Tomsovic,
2017). Due to the fall in the total surplus higher than the area,
covered by the tax-revenue, the deadweight loss rises, due to
negative trade in market, which forces some of the marginal buyers
to exit.
The customer surplus declines from area A+C+E to area
A, manufacturer surplus shrinks from region B+D+F to area B, and
the tax incomeequals area C+D, which is more than the total
surplus. This causes a deadweight loss of area E+F.
c) An increase in the deadweight losses makes consumers and
producers worse off, whereas its decline makes both of them better
off. In the graph, the x-axis speaks to the amount of pizza, and the
vertical axis the showcase cost of the pizza. In case the charges are
expelled and the buyers and makers deliberately exchange a few
sum to the government, everybody will be way better off. It’ll so
happen since the advertisement will not shrivel. As a result, the
harmony cost and the harmony amount will be P* and Q*,
individually. The buyer overflow is A+B+C, while the maker excess
is D+E+F. When area under B and D is transferred to the
government, it increases the tax revenue for the government, which
would be zero had the consumers not given this amount willingly.
Consumer surplus increases to the area under A and C. there is a
gain in the surplus by area under C since it was a part of the
deadweight loss when taxes were imposed. Similarly, producer
surplus increases from area under F to area under E and F. the gain
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
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???????? ???????? ????????????
College of Administrative and Financial Sciences
in the surplus is due to area E that is recovered from the deadweight
loss.
Q3;
a. Qs=Qd
Equilibrium quantity, Qs=2P
Equilibrium demand, Qd=300-P
2P=300-P
3P=300
P= $100
Equilibrium quantity, Qs=2P
=2*100 = 200 units
b. Assume Qd=Qs and Pd is the demand price while Ps supply cost.
Qd=2Ps
Qd=300-(Ps + T)
2Ps = 300-(Ps + T)
2Ps = 300-Ps -T
Ps = 100- T/3
The demand price (the price paid by the buyers) equals to the
price supplied plus tax
Pd = Ps + T
Pd = 100- T/3+T =100+ 2T/3
At equilibrium Qd=Qs
=2Ps
= 2(100- T/3)
= 200-2T/3
The price received by the sellers is reduced by a thirds the tax,
from 100 to 100- T/3, while that paid by the buyers increases by
two thirds of the tax charged from 100 to 100+ 2T/3, and the
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
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College of Administrative and Financial Sciences
quantity sold reduces by two thirds of the tax charged from 200
to 200-2T/3.
c. Tax revenue is given by Tax multiplied by the quantity
= TxQ
= (200-2T/3) XT
=200T 2T2/3
d. The triangle’s base is obviously T, and the height is 200-(200-
2T/3), which is the decreasing amount of the quantity.
2T/3 = 1T/2(200-200+2T/3) = deadweight loss
e. It
is not a virtuous policy since the tax income does
not extend its extreme level is when tax is 200 per unit. I
suggest levying a $150 per unit tax on this product but when T
is 150 per unit, the tax collection achieves its maximum level of
$15,000.
References
Asadinejad, A., & Tomsovic, K. (2017). Optimal use of incentive
and price based demand response to reduce costs and price
volatility. Electric Power Systems Research, 144, 215-223.
Vu, D. H., Muttaqi, K. M., Agalgaonkar, A. P., & Bouzerdoum, A.
(2018). Customer reward-based demand response program to
improve demand elasticity and minimise financial risk during
price
spikes. IET
Generation,
Transmission
&
Distribution, 12(15), 3764-3771.
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Explanation & Answer:
3 Questions
Tags:
demand and supply
price
Equilibrium
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