Q3. Suppose a perfectly competitive market is in a long run equilibrium at a price of $5. At that equilibrium, own price elasticity of demand is 0.6 and own price elasticity of supply is 1. The government then introduces a $6 tax in this market. Which of the following COULD be the new SR and LR demand (buyer) and supply (seller) prices? a) SR: PD = $9 & PS = $3. LR: PD = $11 & PS = $5. b) SR: PD = $7 & PS = $1. LR: PD = $11 & PS = $5. c) SR: PD = $9 & PS = $3. LR: PD = $10 & PS = $4. d) More than one of the above COULD be the new SR and LR prices.
Q3. Suppose a perfectly competitive market is in a long run equilibrium at a price of $5. At that equilibrium, own price elasticity of demand is 0.6 and own price elasticity of supply is 1. The government then introduces a $6 tax in this market. Which of the following COULD be the new SR and LR demand (buyer) and supply (seller) prices? a) SR: PD = $9 & PS = $3. LR: PD = $11 & PS = $5. b) SR: PD = $7 & PS = $1. LR: PD = $11 & PS = $5. c) SR: PD = $9 & PS = $3. LR: PD = $10 & PS = $4. d) More than one of the above COULD be the new SR and LR prices.
Chapter6: Elasticities
Section: Chapter Questions
Problem 20P
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Q3. Suppose a
a)
SR: PD = $9 & PS = $3.
LR: PD = $11 & PS = $5.
b)
SR: PD = $7 & PS = $1.
LR: PD = $11 & PS = $5.
c)
SR: PD = $9 & PS = $3.
LR: PD = $10 & PS = $4.
d) More than one of the above COULD be the new SR and LR prices.
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