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Homework answers / question archive / The market for frozen custard is characterized by the following supply and demand functions: 0 Supply: S(P) = —6 + 2P 0 Demand: D(P) = 24 — 4P where P is price (per cup of frozen custard)

The market for frozen custard is characterized by the following supply and demand functions: 0 Supply: S(P) = —6 + 2P 0 Demand: D(P) = 24 — 4P where P is price (per cup of frozen custard)

Economics

The market for frozen custard is characterized by the following supply and demand functions: 0 Supply: S(P) = —6 + 2P 0 Demand: D(P) = 24 — 4P where P is price (per cup of frozen custard). (a) Compute the competitive equilibrium price (per cup) and quantity (num- ber of cups). (10pts) (b) Suppose a $1.5 per-unit tax is imposed on buyers of frozen custard. Find the competitive equilibrium price, Pb, that buyers pay and the competi- tive equilibrium price, P3, that sellers receive. (10pts)

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