Suppose the demand and supply curves of salt are given by:
qD = 1,000
qS = 700 + 2p
(a) Find the equilibrium price and quantity.
(b) Now, suppose that the price of an input that used to produce
salt has increased so, that the new supply curve is
qS = 400 +2p
How does the equilibrium price and quantity change? Does the
change conform to your expectation?
(c) Suppose the government has imposed a tax of Rs 3 per unit of
sale on salt. How does it affect the equilibrium rice quantity?
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