Question
The market for good x has the following demand function: xD=204 Px a. Draw a graph showing the demand curve (don't forget to label the
The market for good x has the following demand function: xD=204 Px
a. Draw a graph showing the demand curve (don't forget to label the axes). Calculate the own-price elasticity of demand for good x when px=3 (you should start with the formula and arrive at a numeric answer).
b. If market supply is given by xs=12px12, add it to the graph above (or in a new graph) and solve for the equilibrium price px and quantity x.
c. Calculate consumer surplus and show it in the graph
d. Suppose all the firms in the market manage to coordinate with each other and increase the price by $1 above the equilibrium level. How many units would be sold? Such an arrangement would be illegal: if discovered, how much should the government ask them to pay to consumers in order to make up for the loss in consumer welfare?
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