Consider a market with a linear relatively Inelastic demand curve and a relatively Elastic linear Supply Curve draw such a market. Denote the Market Outcome as P* and Q* Suppose a tax is imposed on this market of size t. Draw and label this tax. Label the new output and price as Qt and Pt. What happens to consumer and producer surplus? Describe and then specifically shade (lightly with a pencil, highlighter, outline with a thick box boarder) in the NEW level of CONSUMER Surplus only on your graph.

Consider a market with a linear relatively Inelastic demand curve and a relatively Elastic linear Supply Curve draw such a market. Denote the Market Outcome as P* and Q* Suppose a tax is imposed on this market of size t. Draw and label this tax. Label the new output and price as Qt and Pt. What happens to consumer and producer surplus? Describe and then specifically shade (lightly with a pencil, highlighter, outline with a thick box boarder) in the NEW level of CONSUMER Surplus only on your graph.

Principles of Macroeconomics (MindTap Course List)

7th Edition

ISBN:9781285165912

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter7: Consumers, Producers, And The Efficiency Of Markets

Section: Chapter Questions

Problem 7PA

See similar textbooks

Similar questions

A movie production company faces a linear demand curve for its film, and it seeks to maximize total revenue from the films distribution. At what level should the price be set? Where is demand elastic, inelastic, or unit elastic? Explain.
Please no written by hand solution Instead of assuming a linear demand curve, suppose we assume that demand is char- acterized by the following demand function qD = 13.572P −1.5 (a) Suppose the current price is $5. What is the price elasticity of demand at this price? (b) Over what range of prices is demand elastic? Inelastic? Unit elastic?
The market demand function of a commodityis represented by Qx = 20-2Px -0.5Py + 0.01M;where Qx is quantity demanded forcommodity X, Px is the price of commodity X,Py is the price of commodity Y and M is theconsumer's income.Calculate price and cross elasticities ofdemand for commodity X when Px =5, Py=10and M =1000
Let (inverse) demand be Pb= 101-3 Qb and (inverse) supply be Pv = 16+3 Qv. Consider the PRICE CEILING (P_low) depicted, what is the reduction in tradecaused by the PRICE CEILING?
The demand for Amazon 's Kindle e-reader can be approximated by q(p)=21e−0.01pmillionunitsperyear(50≤p≤400), where p is the price charged by Amazon. Obtain a formula for price elasticity of demand E, and calculate its value at the two endpoints of the given range of prices. Is the price that would maximize annual revenue within the range of prices shown? How would you know this without calculating that price?
Suppose the supply and demand curves for a particular product are given by Qs=-20+2p Qd=100-2p Where Qs and Qd are quantities in units and P is the price per unit. Graph the supply and demand curves. Be sure to calculate the P and Q intercepts for demand and the P intercept for supply. Calculate and illustrate the equilibrium price and quantity. Calculate both the demand and supply elasticity around the equilibrium point. Suppose the government implements a price ceiling of $20/unit in this market. Is the price ceiling binding on the market? What are the quantities demanded and supplied at the price ceiling? How many units are exchanged at this price? Given the effects of the policy, is there a potential for illegal trade? Briefly explain your answers where necessary. What is the value of the economic surplus that would be generated in the original equilibrium? Is there a deadweight loss due to the price ceiling policy, and if so, what is its value? Briefly explain.
a. Assume that the elasticity of demand for Fanta is -0.5 while the elasticity of supply is 0.7. Assuming further that a tax of K10 is applied on each bottle of Fanta sold, how much of this will be borne by producers. b. Assume that the price of good X is K10 while that of good Y is K20. A consumer has allocated consumption between the two goods in such a way that the marginal utility of X is 15 utils and that of Y is 25 utils. Is this an optimal consumption bundle? If not, what should the consumer do to reach the optimum?
(a) Output of the home firm is y = d(q, p, I). Use the fact that d(q, p, I) is homogeneous of degree zero in (q, p, I) to show that dqq+dpp+dII = 0. Then use the assumption that the income elasticity of demand is unity to show that dpp/d = (η–1). (b) Using (a), compute the total change in home output y = d(q, p, I) as p increases along the home reaction curve. Show that output increases if 0 2.
a)Use the following demand and supply functions to calculate the elasticity of demand at market equilibrium QD=-53P+355 Qs=32P+65 Round your answer to the nearest hundredthb)Jack is looking to determine the difference in the cost of capital of debt between two debt issuers: Issuer One is selling the bond at par, with a face value of $1000, and semi-annual coupon payments of $60 Issuer Two is selling his bond at par, with a face value of $1100 and coupon payments of $50 every six months. However, Issuer Two must pay issuing expenses of $40 per bond, and a discount of $20. Both bonds term to maturities are expected to be 10 years. Help Jack to determine the difference in the cost of capital between these two bonds? Assume a tax rate of 40% A 2.34% B 0.02% C 6.34% D 7.37% E 1.31%
Country Z produces and consumes only two products: milk and bread. The price elasticity of demand ofbread is Ed = −0.1 = 0.1 and the price elasticity of demand of wheat is Ed = −2 = 2The government of country Z needs a significant amount of fund to tackle the current coronavirussituation. To obtain the fund, they have decided to impose a $ 5 tax on either the sellers of rice or thesellers of wheat. Currently, both the equilibrium prices of wheat and rice are $20 per unit respectively.The equilibrium quantities of wheat and rice are 10,000 units (per day) respectively.As the economic advisor of country Z, what would you advise the government of country Z. Whichproduct should they tax to obtain the fund to tackle the coronavirus situation? Discuss in detail using theModel of Demand and Supply (your answer should include two well labeled graphs).
The demand for mineral water is P=10 – (2/3) Q and supply function for mineral water isP=1+(1/3)Qa) Find the equilibrium price and quantity and Price elasticities of demand and supply.b) Suppose a unit tax (t) is imposed on suppliers (t= 3TL). Find the new equilibrium.c) Find the price that consumers pay and the price that producers get after the tax.d) What is the burden of the tax on producers and consumers and explain how the tax burden isrelated to elasticities? thank you in advance.
The market for pizza is characterized by adownward-sloping demand curve and an upwardsloping supply curve.a. Draw the competitive market equilibrium.Label the price, quantity, consumer surplus, andproducer surplus. Is there any deadweight loss?Explain.b. Suppose that the government forces eachpizzeria to pay a $1 tax on each pizza sold.Illustrate the effect of this tax on the pizzamarket, being sure to label the consumer surplus,producer surplus, government revenue, anddeadweight loss. How does each area compare tothe pre-tax case?c. If the tax were removed, pizza eaters and sellerswould be better off, but the government wouldlose tax revenue. Suppose that consumers andproducers voluntarily transferred some of theirgains to the government. Could all parties(including the government) be better off than theywere with a tax? Explain using the labeled areas inyour graph