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Suppose there are two types of consumers in the Incheon chicken market, type A consumers and type B consumers. The demand function of type
Suppose there are two types of consumers in the Incheon chicken market, type A consumers and type B consumers. The demand function of type A consumers is Qa=120 - 4P; the demand function of type B consumer is Qd = 80 - 2P, where Qa is the quantity of chicken, and P is the price of chicken. The supply function for chicken is Qs = 2P-30. The market of chicken is perfectly competitive. (1) (8 points) What is the total market demand function? (Consider all prices from zero to infinity, and write one or more functions that tell what quantity the total market will demand.) Show total market demand on a graph. At which price(s) does the market demand curve kink? (2) (8 points) What is the equilibrium price in the market? At this equilibrium price, how many chickens will type A consumers consume and how many chickens will type B consumers consume? For questions (3)-(4), suppose that because of a news report that bird flu is spreading in Incheon, type B consumers exit the market but type A consumers ignore the news reports and continue to demand chickens just as they did prior to the news report. Type A consumers become the ONLY consumer demanding chickens in the market. (3) (6 points) What will be the new equilibrium price and quantity in the market? What is the price elasticity of demand at the new equilibrium? (4) (8 points) The government decides to relieve the situation by paying a subsidy of 6 per unit of chicken to producers. What will be the price that consumers pay? How much will be the total subsidy?
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