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Suppose the demand function for avocados is Q = 104 - 40p + 2Opt + 0
Suppose the demand function for avocados is
Q = 104 - 40p + 2Opt + 0.01Y, where p is the price of avocados, lot is the price of tomatoes, and Y is average income, and the supply function for avocados is Q = 58 + 15p - 20pf,
where pf is the price of fertilizer. Suppose pt = $0.80, Y = $4,000, and pf = $0.40. What is the equilibrium price and quantity of avocados? The equilibrium price of avocados is
and the equilibrium quantity is
Q=
P = $
units. (Enter your responses rounded to two decimal places.)
Suppose the government charges a $2.20 specific tax per avocado to be paid by consumers.
With the tax, the equilibrium price of avocados is
P = $
and the equilibrium quantity is
units.
Expert Solution
Given,
Qd = 104 - 40p + 20tp + 0.01Y
Qs = 58 + 15p - 20pf
Substituting given values-
Qd = 104 - 40p + 20 * 0.80 + 0.01 * 4000
= 104 - 40p + 16 + 40
Qd = 160 - 40p
Qs = 58 + 15p - 20 * 0.40
= 58 + 15p - 8
Qs = 50 + 15p
At equilibrium, Qd = Qs
160- 40p = 50 + 15p
160 - 50 = 40p + 15p
110 = 55p
p = 110/55 = 2
AT p = 2,
Q = 50 + 15 * 2 = 80
Tax on consumer changes demand equaiton as , 160 - 40(p + 2.20)
Qd = 160 - 88 - 40p
= 72 - 40p
Equating this with supply equation,
72 - 40p = 50 + 15p
22 = 55p
p = 22/55 = $0.40
Q at P = $0.40
Q = 72 - 40 * $0.40 = 56
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