7. (2 marks) In the market for bobcat fur, supply is described by the equation Q

Question

7. (2 marks) In the market for bobcat fur, supply is described by the equation Q 2+P, and demand is described by Q = 3-4P. P is in dollars, and Q is in ounces of fur. Calculate the equilibrium quantity to two decimal places: equilibrium, to two decimal places. Make sure you attach the correct sign. Answer: Price elasticity of demand is 9. (3 marks) Refer again to the market in Question 7. Suppose the government charges a tax on bobcat fur, payable by the buyer. Using the elasticity method, calculate the share of the burden of the tax that falls on the seller. (Choose the closest answer from the list below) a. 0% b. 20% C. 40% d, 60% e. 80% f. 100%

Explanation / Answer

Q=2+P
q=3-4P
AT EQUILLIBRIUM QS=QD
2+P=3-4P
5P=1
P=0.20
Q=2+0.20=2.20

Q=3-4P
dQ/dP=-4
Elasticity=dQ/dP*P/Q
=-4*0.2/2.2
=-0.363

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