Prepare a hypothetical linear demand and supply schedule (you can use the same schedule as in question 2) , estimate the demand and supply equations, and the calculate initial consumer surplus and producer surplus. Now assume that government intervenes in the market through ceiling price (assume a value) and or floor price (assume a value). Find the change in welfare (DWL) loss and the new consumer surplus and producer surplus. Do you support these types of interventions?
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Prepare a hypothetical linear
schedule as in question 2) , estimate the demand and supply equations, and the calculate
initial
in the market through ceiling
Find the change in welfare (DWL) loss and the new consumer surplus and producer
surplus. Do you support these types of interventions?
Step by step
Solved in 4 steps with 2 images
- Paper cups are popular items for schools and are produced in the market. There are equations for the Supply and Inverse Demand of paper cups that model its Supply and Demand graph. These equations are (for supply), P = 2 + 3Qs, and (for Inverse Demand), P = 12 - 2Qd. Likewise, paper cups are inexpensive and not very helpful for companies trying to achieve high profits. As a result, the government placed a price support of $9. (Part I) Draw the market equilibrium with the government intervention (Q**, P**) of the price ceiling. Please label the graph for slopes, equilibrium points, price support, etc. (Part II) What is the market equilibrium with the intervention of the government (Q**, P**)? (Part III) What is the government surplus (GS**)? (Part IV) What is the Dead Weight Loss (DWL**)?Consider a market that is perfectly competitive and has no externalities. Which, if any, of these government interventions would lead to deadweight loss from preventing surplus generating transactions from occuring? (a) A subsidy (b) A tax (c) A binding price floor (d) A binding price ceiling.The market for jelly has a supply and demand given by the following: QD=200–10p QS=20p–100 (a) What is the consumer surplus and producer surplus? (b) Suppose to aid families, the government instates a price ceiling of 9. What is the resulting CS and PS. What is the deadweight loss? (c) Unhappy with the resulting shortages of jelly, the government removes the price ceiling and replaces it with a subsidy to consumers. What subsidy would be required to lower the price consumers pay to 9? (d) What is the resulting CS, PS from the subsidy? (e) How much does the subsidy cost the government? What is the DWL?
- 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.Consider a free market with demand equal to QQ = 900 − 10PP and supply equal to QQ = 20PP. Now the government imposes a $15 per unit subsidy on the production of the good. What is the consumersurplus now? The producer surplus? Why is there a deadweight loss associated with the subsidy, and whatis the size of this loss?Assume the demand equation for a product is given by P=50-Q, while the supply curve is given by P=20+Q.a. Compute the consumers and producers surpluses at the laissez- faire market equilibrium price and quantity. b. Assume government sets a price ceiling of K30, what is the change in consumers and producers surpluses? c. What is the deadweight loss in welfare?
- Suppose that the government has been supporting the price of corn. Its free market price is $2.50 per bushel, but the government has been setting a support price of $3.50 per bushel. Which of the following are ways that the government might try to reduce the size of the corn surplus? (Select one or more answers from the choices shown.) a. Decrease the support price. b. Institute an acreage allotment program. c. Decrease demand by taxing purchases of corn. d. Raise the support price.Consider a competitive market where the market demand and the market sup- ply are given, respectively, by QD=500−2P and QS=2P (a) Find the competitive equilibrium price and quantity. (b) Suppose the government wants to help the producers by imposing a price floor of pf = 150. Assuming that the producers correctly anticipate the demand at price p f , find the consumer surplus, producer surplus, and the deadweight loss. (c) Suppose, instead of using a price floor, the government decides to help the producers by imposing a per unit tax t in the market and then giving all the tax collected to the producers. What is the value of t that will make the producers equally well off as in part (b)? What is the resulting deadweight loss?Governments often attempt to boost the income of some agricultural producers with a variety of policies. We will discuss this in depth later in the course, but two approaches often discussed in introductory economics courses are quotas and production subsidies. Using basic supply and demand analysis, discuss how these policies work with emphasis on their similarities and differences. Does the elasticity of demand matter when comparing the policies?
- Suppose the market for product X is described by the following equations. QD=600-2P and QS= -150+3P, where P is price in dollars and Q is the quantity in thousands. Calculate the equilibrium price and quantity in a free market. Now suppose that the government pays a subsidy of $20 per unit of product X. Calculate the buyer's price, the seller's price, and the equilibrium quantity Why does a tax create a deadweight loss? What determines the size of this lossSuppose that weekly demand for loaves of bread (in thousands) is given by P = 10 – Q, and supply is given by P = 0.25Q. On a graph, show the market equilibrium price and quantity. Calculate producer and consumer surplus at the market equilibrium. Suppose that the government believes that the price is too high and decides to impose a price ceiling of $1. Demonstrate the new equilibrium quantity on your graph. Calculate the new producer and consumer surplus at the ceiling price.This exercise is to help you understand the impact of different policies on consumer surplus (CS), producer surplus (PS), and total surplus (TS). a. Please draw a supply and demand diagram in a competitive market. Label the x-axis and y-axis. Identify the CS, PS and TS. b. [price control] Suppose now government sets a binding price ceiling (maximum price), draw a supply and demand diagram and show the change in CS, PS, TS, and deadweight loss(DWL). Whose surplus does the government try to improve? Does the policy achieve this goal? Why? c. [price control] Suppose now government sets a binding price floor (minimum price), draw a supply and demand diagram and show the change in CS, PS, TS, and deadweight loss (DWL). Whose surplus does the government try to improve? Does the policy achieve this goal? Why?