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(a) 4 units
(b) 1 unit
(c) no units
5. For each of the following pairs of equations: (i) nd the values of x and y
that satisfy both equations; (ii) plot them in a graph and use this graph
to discuss your answer to part (i).
(a) 2x y = 4 and 5x = 4y + 13
(b) y = x2 + 1 and 2y = 3x + 4
6. A consumer has a choice of two goods, good 1 and good 2. The quantity
of good 1 chosen is given by x1 , while the quantity of good 2 chosen is
given by x2 . The price of good 1 is p, the price of good 2 is 1, and the the
consumer has income M .
1
(e) Show on your diagram what happens to the budget line if the price
of good 1 falls by 50%.
12
q s (p) = 50p and q d (p) = 100 1
p
(a) How many bottles of beer will consumers demand if the price is 5?
(b) At what price will demand be zero?
(c) Find the equilibrium price and quantity in the market
(d) Determine the inverse supply and demand functions ps (q) and pd (q)
(e) Sketch the inverse supply and demand functions, showing the market
equilibrium.
Now suppose that the technology for making beer changes, so that
the unit cost of producing a bottle of beer is 1, whatever the scale
of production. The government introduces a tax on the production
of beer of t per bottle. After these changes, the demand function
remains the same, but the new inverse supply function is ps (q) = 1+t.
(f) Show the new supply function on your diagram
(g) Find the new equilibrium price and quantity in the market (in terms
of the tax t):
(h) Find a formula for the total amount of tax raised (in terms of t).
Discuss how the amount collected changes as the tax increases.