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Chapter 3

Chapter 3. Applying the Supply-and-Demand Model. Figure 3.01a How the Effect of a Supply Shock Depends on the Shape of the Demand Curve. (a). p. , $ per kg. 1. D. e. 2. 3.55. 3.30. e. 2. S. 1. 1. S. 0. 176. 215. 220. Q.

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Chapter 3

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  1. Chapter 3 Applying the Supply-and-Demand Model

  2. Figure 3.01a How the Effect of a Supply Shock Depends on the Shape of the Demand Curve (a) p , $ per kg 1 D e 2 3.55 3.30 e 2 S 1 1 S 0 176 215 220 Q , Million kg of pork per year

  3. Figure 3.01b How the Effect of a Supply Shock Depends on the Shape of the Demand Curve (b) p , $ per kg 2 D e 2 3.675 3.30 e 2 S 1 1 S 0 176 220 Q , Million kg of pork per year

  4. Figure 3.01c How the Effect of a Supply Shock Depends on the Shape of the Demand Curve (c) p , $ per kg e 2 3 D 3.30 e 1 2 S 1 S 0 176 205 220 Q , Million kg of pork per year

  5. Figure 3.02 Elasticity Along the Pork Demand Curve p , $ per kg Perfectly elastic a / b = 14.30 Elastic: e < – 1 11.44 e = – 4 D a /(2 b ) = 7.15 Unitary: e = – 1 Inelastic: 0 > e > – 1 3.30 e = – 0.3 Perfectly inelastic 0 a / 5 = 57.2 a / 2 = 143 220 a = 286 Q , Million kg of pork per year

  6. Figure 3.03a Vertical and Horizontal Demand Curves (a) Perfectly Elastic Demand p , Price per unit p * Q , Units per time period

  7. Figure 3.03b Vertical and Horizontal Demand Curves (b) Perfectly Inelastic Demand p , Price per unit Q * Q , Units per time period

  8. Figure 3.03c Vertical and Horizontal Demand Curves (c) Individual ’ s Demand for Insulin p , Price of insulin dose p * Q * Q , Insulin doses per day

  9. Figure 3.04 Elasticity Along the Pork Supply Curve p , $ per kg S 5.30 h ≈ 0.71 4.30 h ≈ 0.66 3.30 h ≈ 0.6 2.20 h ≈ 0.5 0 176 220 260 300 Q , Million kg of pork per year

  10. Figure 3.05 Effect of a $1.05 Specific Tax on the Pork Market Collected from Producers p , $ per kg 2 S e = $1.05 t 2 1 S p = 4.00 2 e 1 p = 3.30 $216.3 million 1 = T p – = 2.95 t 2 D 0 176 Q = 206 Q = 220 2 1 Q , Million kg of pork per year

  11. Solved Problem 3.1 p , Price per unit e 2 2 p = p + 1 S 2 1 t = $1 e 1 p 1 S 1 D Q Q 2 1 Q , Quantity per time period

  12. Figure 3.06 Effect of a $1.05 Specific Tax on Pork Collected from Consumers p , $ per kg e Wedge, = $1.05 t 2 S p = 4.00 2 e 1 p = 3.30 1 T = $216.3 million p – = 2.95 t 2 = $1.05 t 1 D 2 D 0 176 Q = 206 Q = 220 Q , Million kg of pork per year 2 1

  13. Figure 3.07 A Comparison of an Ad Valorem and a Specific Tax on Pork p , $ per kg e S 2 p = 4.00 2 e 1 p = 3.30 = 1 T $216.3 million D p – = 2.95 t 2 a D s D 0 176 Q = 206 Q = 220 , Million kg of pork per year Q 2 1

  14. Problem Solved 3.2 p , Price per unit S 1 D 2 D e p * 1 p * a e a (1 – ) p * 2 Q * Q , Quantity per time period

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