Consider the inverse demand curve: p= 100 – 2Q. Assume the market price is $40.00. Calculate consumer surplus at the equilibrium market price and quantity. Consumer surplus (CS) is $. (Enter your response rounded to two decimal places.) Now suppose a government imposes a tax on the good that increases the market price to $50.00. Consumer surplus will V by $ (Enter your response rounded to two decimal places.) increase decrease

Consider the inverse demand curve: p= 100 – 2Q. Assume the market price is $40.00. Calculate consumer surplus at the equilibrium market price and quantity. Consumer surplus (CS) is $. (Enter your response rounded to two decimal places.) Now suppose a government imposes a tax on the good that increases the market price to $50.00. Consumer surplus will V by $ (Enter your response rounded to two decimal places.) increase decrease

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter4: Prices: Free, Controlled, And Relative

Section: Chapter Questions

Problem 4WNG

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The demand for ice cream is given by QD = 200 – 20P and the supply of ice cream is given by QS = - 100 + 40P. The quantity is measure in gallons of ice cream. - Calculate the consumer surplus, producer surplus, and total surplus at the market equilibrium. Now assume that the government decides to set the price of ice cream at $ 7.00 per gallon. Would this create a surplus or a shortage in the ice cream market? Calculate the surplus (or shortage). Calculate the consumer surplus, producer surplus, and total surplus at the new $ 7.00 price. What happened to each after the intervention of the government in the ice cream market? Calculate the deadweight loss after the imposition of the $ 7.00 price. Compare this to the deadweight loss associated with the market equilibrium. In your own words, explain why this deadweight loss is a measure of the inefficiency in the market created by the government intervention.
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Suppose the government intervenes in a competitive market and buys goods at 'p-' and sells them at 'p_'. Fill in the area that corresponds to the deadweight loss associated with this policy in the figure below. Explain your rationale
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The demand and supply functions for three goods are given as follows: Dx=100-3Px+Py+3Pz Dy=80 +Px-2Py-2Pz Dz=120+3Px-Py-4Pz Sx=-10+Px Sy=-20=3Py Sz=-3+2Pz Q1: Determine the equilibrium prices and quantities of all three goods. · The government decides to: a. Impose a 25% tax on X b. Impose a 5Rs unit Tax on Y c. Gives a 10% subsidy on good Z · Analyze the impact of each of these three policies separately on equilibrium prices and Quantities. · Also calculate changes in consumer and producer surpluses and the amount of revenue earned by the government. Q2: Repeat this exercise when polices (a, b),(b,c) & (a, b,c) are jointly implemented. Which policy choice is best? Why? Q:3 Provide theoretical justification (using diagrams) of all results obtained.
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This chapter analyzed the welfare effects of a tax on a good. Consider now the opposite policy. Suppose that the government subsidizes a good. For each unit of the goods sold, the government pays $2 to the buyer. A) Use the black point (plus symbol) to indicate the initial equilibrium in this market before the subsidy. Then use the green point (triangle symbol) to shade the area representing consumer surplus, and use the purple point (diamond symbol) to shade the area representing producer surplus. B) On the following graph, use the tan segment (dash symbols) to indicate the wedge formed between the price received by producers and the price consumers pay out of their own pocket. (Hint: Find the quantity to the right of the initial equilibrium where the difference between the supply and demand curves is $2.) Next use the black point (plus symbol) to indicate the price producers receive at that quantity, and use the grey point (star symbol) to indicate the price consumers…
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