Consider the competitive market for corn chips. This market has a supply curve that is given by: Qs = 100+ 10P.There are two types of consumers in this market, adults and children.
The demand for children is given by Qdc = 90-4P
The demand for adults is given by Qda = 70-16P
(a) Ilustrate what is the equilibrium cost in the corn chip market. How many corn chips will be bought by children and how many by adults?
(b) What is the elasticity of demand for corn chips for adults and for children when the price falls from $4 to $2?
(c) A medical report indicates that corn chip eaters have a higher risk of heart attack than those who abstain. At the same time a new cost-reducing innovation in corn chip production is found. What are the effects on the equilibrium price and quantity of corn chips?
Q3. (a) In a recent article, a researcher reported that he had found the demand curve for kerosene to be upward sloping.-as the price of kerosene rose the quantity demanded of kerosene increased. What questions might you have for this researcher?
(b) Even if the government sets a price ceiling, excess demand will force the price above it. Government intervention is therefore a pointless exercise. Evaluate .
Q4. The demand for DVDs in the Australian market in thousands is given by Qd, =750 â 30P and the domestic supply in thousands by Qs = 300 + 15P.
(a) What is the equilibrium price and quantity of DVDs assuming there is no foreign competition? A foreign producer is able to produce and sell DVDs for $5 and commences to export to Australia.
(b) What is the equilibrium price and quantity of DVDs as a result of these imports?
(c) How many DVDs are supplied by Australian producers and how many are imported? To protect Australian producers the government imposes a tariff of $2 on each DVD imported into Australia.
(d) What effect does this have on domestic consumption and production of DVDs?
(e) How much does the government collect in import duty? What is the deadweight loss that arises from the imposition of this tariff?