King Kanuta rules a small tropical island, whose primary crop is coconuts. The d
ID: 1203154 • Letter: K
Question
King Kanuta rules a small tropical island, whose primary crop is coconuts. The demand and supply functions for coconuts is given by D(p) = 1200 - 100p S(p) = 100p What is the competitive equilibrium price of coconuts? What quantity will be supplied at this price? Suppose the king logins taxing his subjects by requiring every subject to purchase one coconut for the king for every coconut he purchases for himself. When the price that is received by the sellers is p, what is the effective price p_B for a buyer (i.e. how much does it cost for the subject to obtain one coconut for himself? When the price paid to suppliers is p, how many coconuts will the king's subjects demand for their own consumption? D*(p) = How much will they demand for the King's consumption? What is the total demand for coconuts at seller price p? D^T(p) = Given total demand function D^T (p) and supply function S(p): What is the new equilibrium price the sellers receive? p = How many coconuts are supplied at this price? How many coconuts do the subjects consume? In the Graph below draw and label the functions S(p), D(p), D*(p), and D^T(p) defined above.Explanation / Answer
a.
D = 1200 – 100P
S = 100P
The equilibrium condition is D = S
1200 – 100P = 100P
200P = 1200
P = 6
Answer: The equilibrium price, p = 6
b.
Putting p = 6 in either the demand function or in supply function
D = 1200 – 100P
= 1200 – 100 × 6
= 1200 – 600
= 600
Answer: Supplying quantity is 600 units
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