Consider the market for ice cream cones. Suppose that supply in this market is given by Ps = Q5 and demand is given by PD = 30 – 4 × QD. Answer the following questions. Notice that the competitive equilibrium (Qº,P®) and the point (Qf, PS) are both on the supply curve. Use them to compute the price elasticity of supply. Does the side of the market with a larger elasticity have a higher tax incidence?
Consider the market for ice cream cones. Suppose that supply in this market is given by Ps = Q5 and demand is given by PD = 30 – 4 × QD. Answer the following questions. Notice that the competitive equilibrium (Qº,P®) and the point (Qf, PS) are both on the supply curve. Use them to compute the price elasticity of supply. Does the side of the market with a larger elasticity have a higher tax incidence?
Chapter4: Supply And Demand: An Initial Look
Section: Chapter Questions
Problem 8TY
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Transcribed Image Text:Consider the market for ice cream cones. Suppose that supply in this market is given by PS = Q$ and
demand is given by PD = 30 – 4 × QD. Answer the following questions.
Notice that the competitive equilibrium (Qº, Pº) and the point (Qf, PS) are both on the supply
curve. Use them to compute the price elasticity of supply. Does the side of the market with a
larger elasticity have a higher tax incidence?
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