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Help with economics question

 
 
Reply Wed 27 Jul, 2016 06:56 pm
So this is the question I am having trouble with. I have the answers to and understand the first two questions but have no idea how to solve for the final two answers and really want to learn how to do so for these types of questions.

Any help whatsoever is appreciated.

Cheers,
Lincoln

(i) The price that consumers are willing to pay for petrol per litre per week in a small town can be characterised by the following relationship: Demand = $3 - $0.5 x Q, where Q = thousands of litres of petrol. Identify the price that consumers are willing to pay at 1, 5 and 10 thousand litres of potential consumption.
(ii) The price that producers are willing to supply for petrol per week can be characterised by the following relationship: Supply = $0.00 + $0.05 x Q, where Q = thousands of litres of petrol. Identify the price that producers are willing to supply 1, 5 and 10 thousand litres of petrol per week.
(iii) Identify the price and quantity where the supply and demand functions are in equilibrium, and show them on a graph.
(iv) What happens if the government places a $0.20/litre tax on petrol to capture the social costs of pollution? What is the new equilibrium?
(v) Now assume that instead of a tax, the government subsidises petrol directly to consumers by $0.90/litre, no matter the price. What is the effect on demand and the new equilibrium?
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