Suppose that the demand for broccoli is given by: Q=1000-5P where Q is quantity per year measured in hundreds of bushels and P is the price in dollars per hundred bushels. The long-run supply curve for broccoli is given by: Q=4P-80 Show that the equilibrium quantity here is Q= 400. At this output, what is the equilibrium price? How much in total is spent on broccoli? What is consumer surplus at this equilibrium? What is producer surplus at this equilibrium? How much in total consumer and producer surplus would be lost if Q= 300 instead of Q= 400? Show how the allocation between suppliers and demanders of the loss of total consumer and producer surplus described in part (b) depends on the price at which broccoli is sold. How would the loss be shared if P= 140? How about if P= 95? What would be the total loss of consumer and producer surplus if Q= 450 rather than Q= 400? Show that the size of this total loss also is independent of the price at which the broccoli is sold. Now suppose the government instituted a $45 per-hundred-bushel tax on broccoli. How would this tax affect equilibrium in the broccoli market? How would this tax burden be shared between buyers and sellers of broccoli? What is the excess burden of this tax? Suppose now the demand for broccoli shifted to Q= 2,200 - 15P. Answer parts (e) and (f) for this alternative demand curve. 9. Suppose now that the broccoli market is characterized by the original demand curve, but the supply curve is: Q= 1OP- 800. Answer parts (e) and (f) for this case. 10. What do you conclude by comparing these three cases of tax incidence we have examined for the broccoli market?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.6P

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Question

Suppose that the demand for broccoli is given by:

Q=1000-5P

where Q is quantity per year measured in hundreds of bushels and P is the price in dollars per hundred bushels. The long-run supply curve for broccoli is given by:

Q=4P-80

Show that the equilibrium quantity here is Q= 400. At this output, what is the equilibrium price? How much in total is spent on broccoli? What is consumer surplus at this equilibrium? What is producer surplus at this equilibrium?
How much in total consumer and producer surplus would be lost if Q= 300 instead of Q= 400?
Show how the allocation between suppliers and demanders of the loss of total consumer and producer surplus described in part (b) depends on the price at which broccoli is sold. How would the loss be shared if P= 140? How about if P= 95?
What would be the total loss of consumer and producer surplus if Q= 450 rather than Q= 400? Show that the size of this total loss also is independent of the price at which the broccoli is sold.
Now suppose the government instituted a $45 per-hundred-bushel tax on broccoli. How would this tax affect equilibrium in the broccoli market?
How would this tax burden be shared between buyers and sellers of broccoli?
What is the excess burden of this tax?
Suppose now the demand for broccoli shifted to

Q= 2,200 - 15P.

Answer parts (e) and (f) for this alternative demand curve.

9. Suppose now that the broccoli market is characterized by the original demand curve, but the supply curve is:

Q= 1OP- 800.

Answer parts (e) and (f) for this case.

10. What do you conclude by comparing these three cases of tax incidence we have examined for the broccoli market?

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

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