1801 words - 8 pages

Question 1

a) DA + DB = AD

I used the following two equations when calculating the aggregate demand for each of the consumer groups:

ADA = 20,000,000(5-0.2p)

ADB = 20,000,000(6-0.3p)

The two consumer groups overlapped between the boundary 0 to 20 therefore from 20 to 25, I used the aggregate demand equation for consumer A and as a result the 2 equations I used to calculate the total aggregate demand were:

ADT = 20,000,000(11-0.5p) 0 ≤ p ≤ 20

ADT = 20,000,000(5-0.2p) 20 < p ≤ 25

ADT = 0 25 > P

Figure 1. Demand of each consumer and total demand of consumer A at a certain price

Price

Demand for each consumer A (DA)

Total demand for consumer A (per million)

25

0

0

20

1

20

15

2

40

10

3

60

5

4

80

0

5

100

Figure 2. Demand of each consumer and total demand of consumer B at a certain price

Price

Demand for each consumer B (DB)

Total demand for consumer B (per million )

25

0

0

20

0

0

15

1.5

30

10

3

60

5

4.5

90

0

6

120

Figure 3. Total demand of the economy at each given price

Price

Total demand (DT) in millions

25

0

20

20

15

70

10

120

5

170

0

220

Figure 4. Total supply of the economy at each given price

Price

Total Supply (Kg) in millions

25

250

20

200

15

150

10

100

5

50

0

0

Figure 5: Graph showing the demand for meat its supply before and after the tax increase of 25%

b) Figure 5 shows the supply & demand curve both overlap when equilibrium price is £11 and quantity is 110 million kg. Once I had found the equilibrium price I substituted it into the supply quantity formula to find the equilibrium quantity. The equilibrium point is point A on the graph.

200,000,000(11-0.5p) = 10,000,000p

2(11-0.5p) = P

22-p = P

P1 =11

S=10,000,000(11)

Q1=110,000,000

Equilibrium Price: £11 Equilibrium Quantity: 110,000,000 Kg

c) i) To calculate the supply curve after tax is introduced, you have to take the price in the table (Figure 4) and multiply it by 1.25. This resulted in a steeper supply curve which crossed the demand curve at a different point as seen in Figure 5.

ii) When calculating the equilibrium price and the quantity, I first had to find a constant in my equation; this was then used to signify the tax on the curve.

with 25% tax, S= 10,000,000p*Y

when S= 150,000,000 with tax P=£18.75

therefore – 150,000,000= 10,000,000(18.75)Y

Y=0.8

Once I calculated the constant I then used it to work out the equilibrium price and quantity:

20,000,000(11-0.5p) = 10,000,000p*0.8

22(11-0.5p) = 0.8p

22=1.8p

P2 = £12.22

S= 10,000,000(12.22) *0.8

Q2=97,760,000

Equilibrium Price After Tax = £12.22 Equilibrium Quantity After Tax = 97,760,000

Word Count 315

Question 2

In the United Kingdom, access to motorways is typically free with only limited exceptions. However, they are provided as toll roads in many countries such as Italy (Autostrade) and France (Autoroutes). Toll roads are frequently said to be a typical example of club goods.

Explain the advantages and disadvantages of toll roads compared to toll-free roads by focussing on the nature of club goods and/or public goods....

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