onsider the market for ice cream cones. Suppose that supply in this market is given by ?? =?? and demand is given by ?? =30−4×??. 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 ???, the consumer effective price with the tax ??, the producer effective price with the tax ??, consumer tax incidence and producer tax incidence. c.) Notice that the competitive equilibrium (??,??) and the point (???,??) are both on the demand curve. Use them to compute the price elasticity of demand. d.) Notice that the competitive equilibrium (??,??) and the point (???,??) 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 ta
Consider the market for ice cream cones. Suppose that supply in this market is given by ?? =?? and
a.) Suppose that the government is considering imposing a $4.00
ceiling
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
consumer effective price with the tax ??, the producer effective price with the tax ??, consumer
tax incidence and producer tax incidence.
c.) Notice that the competitive equilibrium (??,??) and the point (???,??) are both on the demand
curve. Use them to compute the price elasticity of demand.
d.) Notice that the competitive equilibrium (??,??) and the point (???,??) 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
cream cones with and without the $1.00 per ice cream cone tax. Compute the
created by the tax.
Step by step
Solved in 5 steps
