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Economice

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  • May 2012
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Unit 2 Assignment
Student Name:

Please answer the following questions. Submit as a Microsoft Word® document to the Dropbox when completed.

1. Explain what would happen to equilibrium price and quantity in the market for Pepsi if the following occurred (be sure to indicate WHY it happens as well):

a. The price of Coke decreases. If the price of coke decrease the demand will increase and if Pepsi stays the same the demand will stand still.

b. Average household income falls from $50,000 to $43,000 I think the demand would decrease because of household budget cuts.

c. There are improvements in soft-drink bottling technology. This will meet the demand faster and improve consumer confidence.

d. The price of sugar increases and the Pepsi launches an extremely successful advertising campaign. If sugar increases then it will cost more to produce Pepsi and the profit margin will decrease unless the price to the consumer goes up.

2. Use the following equations for demand and supply to solve for market equilibrium price and quantity:

Demand: Qd = 100 – 4P
Supply: Qs = 10 + 6P

3. Using the diagram below, answer the following questions:

e. How much is the per-unit tax on cigarettes?
5.50-4.25= $1.25

f. What price do consumers pay after the tax? $5.50

g. How much tax revenue is collected?
1.25*18=22.5 Billion

h. What is the amount of deadweight loss?

d.l=10+6(1.25)=17.5

Directions for Submitting your Assignment
Complete your assignment in this Microsoft Word® document and save it as Username-MT445Assignment-Unit#.doc (Example:TAllen-MT445Assignment-Unit2.doc). Submit your file by selecting the Unit 2: Assignment Dropbox by the end of Unit 2.

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