Answered: Find the parameters of a, b, c and d.…

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter5: Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 13PAE

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Suppose that you are concerned about teenage smoking in the Philippines. You are interested in what the impact would be if a P10 excise tax was added to each pack of cigarettes sold.

You have the following data available:

Elasticity of Demand (General Public): -.5

Elasticity of Demand (Teenagers): -.82

Elasticity of Supply: 6.1

Current Market Price of Cigarettes: P50.51

Current Cigarette Sales: 21.8B

Use the following model and assume linearity.

Qd = a +bP

Qs = c +dP

Find the parameters of a, b, c and d.
Using your estimated model, solve for the equilibrium price and quantity. We already know this, but you should double check to make sure you did part (a) right.

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