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Q1. (4 Points)

Consider an example of the Cookies market; if the supply and demand are:

Qs = 2p ;Qd = 60 - p

Solve:

a)Equilibrium price and equilibrium quantity and calculate total revenue?

b)If there were a price celling equal to 25 SAR per each cloth imposed, calculate the price elasticity of demand? Does this consider elastic, inelastic or unit elastic?Also, calculate the total revenue?

c)Now consider the Brownie market; if the supply and demand is:

i.Qs = - 30 + p ; Qd = 110 - 4p, calculate the equilibrium price and equilibrium quantity.Also, calculate Total Revenue.

ii.If there were a price celling of 25 SAR imposed per each pair of shoes, calculate the price elasticity of demand? Does the shoes consider elastic, inelastic or inelastic or unit elastic? Also calculate total revenue.Hint; plug the new price on the demand curve formula, then find the new quantity demand after change in prices, after that solve for the elasticity by comparing the percentage changes in P & Qd.

d)Compare the total revenue for the cookies market and the total revenue you found on the Brownie market.Which one of product's total revenue has been increased after the price have been increase and why?Explain in words and show the difference in numbers as well.

e)Recall part a (cookies) Calculate the CS & PS. Hint; you need to set Qs=0 & Qd=0 to find the intercept and calculate the CS, PS. then solve for P to find the intercept and calculate the CS, PS. Where the CS is the area between the intercept for demand and the equilibrium price you found on part a.Do not forget that this area is a triangle so carefully calculate the area.The same thing for PS.

f)Now, if the government impose sales tax equal to 15%, what is the CS, PS, government revenue and DWL and show this on the graph? Hint; price paid by the buyer equal 22 SAR and price received by seller equal 19 SAR, the difference is the tax per cookies.The intercept points for the supply and demand on this part are the same as the ones on part e. To find the quantity, plug either the price for the buyer on the demand curve formula or the price for the seller on supply curve formula.Also, remember CS, PS & DWL have triangle area, whereas tax revenue has rectangular area.Graph this manually so you can easily find the answer.

g)Without calculation, would you expect to have higher/ lower government revenue and DWL on Brownie and why?

Q2. (1 Point)

Assume that Saudi Arabia produce only two products; dates and rice where are the price and quantity produced are:

Year Dates (KG) Rice (KG) 2018 (base year) P= 20 SAR Q= 100,000 P= 5 SAR Q= 500,000 2019 P= 20 SAR Q= 120,000 P= 5 SAR Q= 550,000 2020 P= 25 SAR Q= 90,000 P= 6 SAR Q= 450,000