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. a.) Suppose that the government is considering imposing a $4.00 price control as either a price ceiling or a price floor. Would this be a binding price control as a price floor or as a price ceiling? Will this cause a shortage or a surplus? Compute the size of the shortage or surplus that would result. b.) Suppose that instead of a price control, the government is considering imposing a $1.00 per ice cream cone tax in the market on producers. Compute the tax equilibrium quantity Qf, the consumer effective price with the tax PD, the producer effective price with the tax ps, tax incidence and producer tax incidence. c.) Notice that the competitive equilibrium (Qº,Pe) and the point (Qf,Pº) are both on the demand curve. Use them to compute the price elasticity of demand. d.) Notice that the competitive equilibrium (Qº, Pª) and the point (Qf, P5) 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? e.) Compute consumer surplus, producer surplus, and government surplus in the market for ice cream cones with and without the $1.00 per ice cream cone tax. Compute the deadweight loss , consumer created by the tax
Consider the market for ice cream cones. Suppose that supply in this market is given by PS = Q$ and demand is given by PD = 30 – 4 × QD. Answer the following questions. a.) Suppose that the government is considering imposing a $4.00 price control as either a price ceiling or a price floor. Would this be a binding price control as a price floor or as a price ceiling? Will this cause a shortage or a surplus? Compute the size of the shortage or surplus that would result. b.) Suppose that instead of a price control, the government is considering imposing a $1.00 per ice cream cone tax in the market on producers. Compute the tax equilibrium quantity Qf, the consumer effective price with the tax PD, the producer effective price with the tax ps, tax incidence and producer tax incidence. c.) Notice that the competitive equilibrium (Qº,Pe) and the point (Qf,Pº) are both on the demand curve. Use them to compute the price elasticity of demand. d.) Notice that the competitive equilibrium (Qº, Pª) and the point (Qf, P5) 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? e.) Compute consumer surplus, producer surplus, and government surplus in the market for ice cream cones with and without the $1.00 per ice cream cone tax. Compute the deadweight loss , consumer created by the tax
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter16: Public Goods And Public Choice
Section: Chapter Questions
Problem 14PAE
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Transcribed Image Text:Consider the market for ice cream cones.
Suppose that supply in this market is given by PS = QS and
demand is given by PD = 30 – 4 x QD. Answer the following questions.
a.) Suppose that the government is considering imposing a $4.00 price control as either a price
ceiling or a price floor. Would this be a binding price control as a price floor or as a price
ceiling? Will this cause a shortage or a surplus? Compute the size of the shortage or surplus that
would result.
b.) Suppose that instead of a price control, the government is considering imposing a $1.00 per ice
cream cone tax in the market on producers. Compute the tax equilibrium quantity Q, the
consumer effective price with the tax PP, the producer effective price with the tax PS, consumer
tax incidence and producer tax incidence.
c.) Notice that the competitive equilibrium (Q°, Pº) and the point (Q,P") are both on the demand
curve. Use them to compute the price elasticity of demand.
d.) Notice that the competitive equilibrium (Qº,Pº) and the point (Qf,P³) 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?
e.) Compute consumer surplus, producer surplus, and government surplus in the market for ice
cream cones with and without the $1.00 per ice cream cone tax. Compute the deadweight loss
created by the tax.
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Answer questions D and E ONLY
Transcribed Image Text:Consider the market for ice cream cones. Suppose that supply in this market is given by PS = QS and
demand is given by PD
30 – 4 x QD. Answer the following questions.
a.) Suppose that the government is considering imposing a $4.00 price control as either a price
ceiling or a price floor. Would this be a binding price control as a price floor or as a price
ceiling? Will this cause a shortage or a surplus? Compute the size of the shortage or surplus that
would result.
b.) Suppose that instead of a price control, the government is considering imposing a $1.00 per ice
cream cone tax in the market on producers. Compute the tax equilibrium quantity Q, the
consumer effective price with the tax PD, the producer effective price with the tax PS,
tax incidence and producer tax incidence.
c.) Notice that the competitive equilibrium (Q°, pº) and the point (Qf,P") are both on the demand
curve. Use them to compute the price elasticity of demand.
d.) Notice that the competitive equilibrium (Qº,Pº) and the point (Qf,P³) 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?
e.) Compute consumer surplus, producer surplus, and government surplus in the market for ice
cream cones with and without the $1.00 per ice cream cone tax. Compute the deadweight loss
created by the tax.
consumer
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