Economics Question

leomessi

price demand supply
10 1100 500
15 1000 600
20 900 700
25 800 800
30 700 900
35 600 1000
40 500 1100


if the student union decided to subsidy usb keys on campus and gave the seller $10 to every usb key what would be the new equilibrium price and quantity?


If you could explain the answer too it'd be much appreciated

smurfy89

Ya lazy thing .. go do ur homework yourself

Time Magazine

leomessi wrote: »

If you could explain the answer too it'd be much appreciated

How about we explain the approach?

Equilibrium is when supply = demand. What's the non-subsidised equilibrium?

Now, there's a proposal to give the producer $10 for each key. So if it was costing him say, $100, it would now cost him $90. Equilibrium is when supply = demand. What's the new equilibrium?

leomessi

The Economist wrote: »

How about we explain the approach?

Equilibrium is when supply = demand. What's the non-subsidised equilibrium?

Now, there's a proposal to give the producer $10 for each key. So if it was costing him say, $100, it would now cost him $90. Equilibrium is when supply = demand. What's the new equilibrium?

i have an idea but would prefer if you told me the answer.

$35?

€64.21

leomessi

Deleted User wrote: »

€64.21

hows that? I've only been doing economics for a month and the lecturer was going on about 10 +10 =20?

topper75

Still 800/800 no? (with suppliers just being collectively €8000 richer and not passing on the subsidy?)

gerry87

had a big answer to this done, didnt submit.

anyway,

Qd= Quantity Demanded
Qs= Quantity Supplied
P= Price

The functions shown are (got them by just plugging numbers in)

Qd=1300-20P
Qs=300+20P

here with no subsidy we find our equilibrium by letting Qs=Qd

Qs=Qd
300+20P=1300-20P
40P=1000
P=25

for P=25,
Qs=Qd=800

Now the SU puts a subsidy on the supplier of 10 per unit sold, so the new price is (P+10) now,

Qd=1300-20P (unchanged as the subsidy is on the supplier)
Qs=300+20(P+10) or,
Qs=500+20P

Now letting the new Qs=Qd,

500+20P=1300-20P,
40P=800
P=20

New price and Quantities are
P=20
Qs=Qd=900.

Its basically what's happening in http://www.directopedia.org/onTEAM/wiki/img/9/Supply_curve_shift.png that graph.

The point is that the benefits are shared by the customer and the supplier, the price doesn't stay the same or drop €10, it drops €5 (so the customer is 5 better off and the supplier is 5 better off). If you look at the numbers you gave, the supplier is supplying an amount (900) as if it was getting a price of 30, while the customer is demanding as if the price is 20.

Also note that under the old way (Price*Quantity)=(25*800)=20,000, but with the subsidy it's (Price*Quantity)=(20*900)=18,000 i.e. the "world" was better off without the subsidy.

As with everything I say, I could easily be wrong! lemme know if i am.

leomessi

gerry87 wrote: »

had a big answer to this done, didnt submit.

anyway,

Qd= Quantity Demanded
Qs= Quantity Supplied
P= Price

The functions shown are (got them by just plugging numbers in)

Qd=1300-20P
Qs=300+20P

here with no subsidy we find our equilibrium by letting Qs=Qd

Qs=Qd
300+20P=1300-20P
40P=1000
P=25

for P=25,
Qs=Qd=800

Now the SU puts a subsidy on the supplier of 10 per unit sold, so the new price is (P+10) now,

Qd=1300-20P (unchanged as the subsidy is on the supplier)
Qs=300+20(P+10) or,
Qs=500+20P

Now letting the new Qs=Qd,

500+20P=1300-20P,
40P=800
P=20

New price and Quantities are
P=20
Qs=Qd=900.

Its basically what's happening in http://www.directopedia.org/onTEAM/wiki/img/9/Supply_curve_shift.png that graph.

The point is that the benefits are shared by the customer and the supplier, the price doesn't stay the same or drop €10, it drops €5 (so the customer is 5 better off and the supplier is 5 better off). If you look at the numbers you gave, the supplier is supplying an amount (900) as if it was getting a price of 30, while the customer is demanding as if the price is 20.

Also note that under the old way (Price*Quantity)=(25*800)=20,000, but with the subsidy it's (Price*Quantity)=(20*900)=18,000 i.e. the "world" was better off without the subsidy.

As with everything I say, I could easily be wrong! lemme know if i am.

ya that's it.

legend

only how exactly did you get the functions,

gerry87

leomessi wrote: »

ya that's it.

legend

only how exactly did you get the functions,

price demand supply
10 1100 500
15 1000 600
20 900 700
25 800 800
30 700 900
35 600 1000
40 500 1100


Remember JC maths equation of a line, y=mx+c. Or in this case D=mP + c

As the price goes down 5, demand goes up 100. So as the price goes down 10, demand goes up 200. So when price goes from 10 to 0, demand goes from 1100 to 1300. There's your 'c'. Same with Supply.

Then the slope of a line, (y2-y1)/(x2-x1) so say, (500-1100)/(40-10) = -20. There's your m.

Put it all together and whatdoya get??

D=-20P+1300
or
D=1300-20P

I think I made that sound so much more difficult than it actually is.