Calculate the equilibrium price of telecommunications services prior to the tax reduction.
Now that we have developed a formal apparatus for understanding how markets work we will return to Show more Now that we have developed a formal apparatus for understanding how markets work we will return to the story that opened this chapter. Sam recognized that a cut in chip production will ultimately lead to higher chip prices. Since chips are a key input in the production of PCs an increase in the price of chips would in turn lead to a decrease in the market supply of PCs as indicated by the change in supply from S0 to S1in Figure 2-16. Notice that total quantity of PCs sold in the market falls as the equilibrium moves from point A to point B. In light of this anticipated decline in PC sales Sam and Jane discussed the wisdom of going ahead with their plan to double PC Solutions workforce at this time. FIGURE 2-16 Rising Chip Prices Decrease the Supply of PCs Refer to the fact pattern in the Text for Question No. 16 in Problems and Application of Chapter 2: Market Forces: Supply and Demand 1. Calculate the equilibrium price of telecommunications services prior to the tax reduction 2. Calculate the equilibrium price of telecommunications services after the tax reduction. How much does the consumer save? (Hint you will want to set QDX = QSX) 3. After the tax reduction which way will the Supply schedule shift? Hint refer to Chapter 2 Demo Problem 7 (a tax increase problem) Show less
Calculate the equilibrium price of telecommunications services prior to the tax reduction
