1. The daily supply and demand curves for headphones in a city are given by
QS = – 100 + 50P
QD = 500 – 10P
Where QS and QD are the quantities in units and P is the price in Euros
(a)
Construct the supply and demand curves on the graph below and identify the Q
intercept for the demand curve and the P intercept for the supply curve.
[3 marks]
Price of headphones (Euros)
250
200
150
100
50
0
(b)
0
200
400
Quantity of headphones (units)
Calculate the equilibrium price and quantity and identify both of these on the graph.
[3 marks]
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(This question continues on the following page)
The government decides to impose a specific tax of US$30 per litre of red wine.
(c)
State the equations for the demand and supply curves after the imposition of the
specific tax.
[1 mark]
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(d)
Draw a new curve on the graph to reflect the imposition of this tax and identify the
new P intercept of this curve.
(e)
[2 marks]
Explain, with reference to the figures, why the new equilibrium price is not US$30
higher than the original equilibrium price.
[4 marks]
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(f)
Calculate the change in consumer surplus as a result of the imposition of this tax.
[2 marks]
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Total marks for Question 1: 15 marks
2. (a) Complete the table below
Output
(Q)
Price
per
unit
Total
revenue
(TR)
4
30
120
5
28
6
26
7
Average
revenue
(AR)
Marginal
revenue
(MR)
Total
cost
(TC)
Total
variable
cost
(TVC)
Marginal
cost (MC)
140
20
65
25
5
156
16
168
8
21
9
18
10
14
11
2.
168
Average
variable
cost AVC
8
85
12
0
18
-6
25
140
-12
32
88
-52
40
(b) Explain why both marginal cost and average total cost at first fall and then rise with
rising units of output.
[4marks]
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Profit