SkyyMarley Airlines has determined that the price elasticity of demand for two customer segments (Coach and Business Class) is -1.35 and -2.50. Depends on their expectations of profitability, SkyyMarley comprehends the price of a Coach seat should be $175 (one way). How much should SkyyMarley charge for a Business Class ticket?
Assume that the demand curve for apples is given by Qd = 140 - 5P, where Qd is number of pounds demanded per year and p is price per pound. The supply of apples can be stated by Qs = 40 + 3P, where Qs is the number of pounds provided.
A. What is equilibrium price? (Hint: At the equilibrium, quantity demanded & quantity supplied are equal, Qd = Qs.)
B. What is equilibrium quantity supplied and demanded?
C. Compute the consumer surplus at the equilibrium price.
D. Compute the producer surplus at the equilibrium price.
E. Compute the total surplus at the equilibrium price.
F. Now presume that the government imposes a tax of $8 per each pound sold, paid by the consumers. In this case, what are the price and the consumer surplus?