Suppose that the Shapiro administration is considering two possible policies meant to discourage production (andrelated air pollution) of steel in Pittsburgh, where the market for a metric ton of steel produced in Pittsburgh ischaracterized by the following equations for demand and supply:?? = 1200 − ??? = 2?Use this information and a graphical analysis to answer the following.a) What welfare effects would result from the Shapiro administration instituting a $180 per unit tax that sellers arerequired to pay to PA? Be sure to calculate the after-tax prices and quantity. Use a well labeled graph to clearlyillustrate the welfare effects and tax revenue (no need to calculate numerical welfare values for this problem).b) Find what the welfare effects would be if instead a tax the Shapiro administration set a quota of 680 units forthe market. (Hint: A quota allows the combined firms to supply any amount up to, but not exceeding, 680 unitstotal. Moreover, there are no restrictions on the price firms can charge.) Be sure to clearly draw a new marketsupply curve in your graph that reflects the impact of this policy as a part of your answer.c) How do the potential policies diverge in their welfare impacts?d) Is the quota policy a Pareto improvement over the market equilibrium outcome before the quota/tax? Explainyour reasoning in no more than two sentences 1) Suppose that the Shapiro administration is considering two possible policies meant to discourage production (andrelated air pollution) of steel in Pittsburgh, where the market for a metric ton of steel produced in Pittsburgh ischaracterized by the following equations for demand and supply:Qa= = 1200 - p2pQsUse this information and a graphical analysis to answer the following.=a) What welfare effects would result from the Shapiro administration instituting a $180 per unit tax that sellers arerequired to pay to PA? Be sure to calculate the after-tax prices and quantity. Use a well labeled graph to clearlyillustrate the welfare effects and tax revenue (no need to calculate numerical welfare values for this problem).b) Find what the welfare effects would be if instead a tax the Shapiro administration set a quota of 680 units forthe market. (Hint: A quota allows the combined firms to supply any amount up to, but not exceeding, 680 unitstotal. Moreover, there are no restrictions on the price firms can charge.) Be sure to clearly draw a new marketsupply curve in your graph that reflects the impact of this policy as a part of your answer.How do the potential policies diverge in their welfare impacts?c)d)Is the quota policy a Pareto improvement over the market equilibrium outcome before the quota/tax? Explainyour reasoning in no more than two sentences.

Demand function : Q = 1200 - p Supply function : Q = 2p In part (a) PA puts a per unit tax of $180…

Answered: Suppose that the Shapiro administration…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.10P

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Question

Suppose that the Shapiro administration is considering two possible policies meant to discourage production (and
related air pollution) of steel in Pittsburgh, where the market for a metric ton of steel produced in Pittsburgh is
characterized by the following equations for demand and supply:
?? = 1200 − ?
?? = 2?
Use this information and a graphical analysis to answer the following.
a) What welfare effects would result from the Shapiro administration instituting a $180 per unit tax that sellers are
required to pay to PA? Be sure to calculate the after-tax prices and quantity. Use a well labeled graph to clearly
illustrate the welfare effects and tax revenue (no need to calculate numerical welfare values for this problem).
b) Find what the welfare effects would be if instead a tax the Shapiro administration set a quota of 680 units for
the market. (Hint: A quota allows the combined firms to supply any amount up to, but not exceeding, 680 units
total. Moreover, there are no restrictions on the price firms can charge.) Be sure to clearly draw a new market
supply curve in your graph that reflects the impact of this policy as a part of your answer.
c) How do the potential policies diverge in their welfare impacts?
d) Is the quota policy a Pareto improvement over the market equilibrium outcome before the quota/tax? Explain
your reasoning in no more than two sentences

1) Suppose that the Shapiro administration is considering two possible policies meant to discourage production (and
related air pollution) of steel in Pittsburgh, where the market for a metric ton of steel produced in Pittsburgh is
characterized by the following equations for demand and supply:
Qa= = 1200 - p
2p
Qs
Use this information and a graphical analysis to answer the following.
=
a) What welfare effects would result from the Shapiro administration instituting a $180 per unit tax that sellers are
required to pay to PA? Be sure to calculate the after-tax prices and quantity. Use a well labeled graph to clearly
illustrate the welfare effects and tax revenue (no need to calculate numerical welfare values for this problem).
b) Find what the welfare effects would be if instead a tax the Shapiro administration set a quota of 680 units for
the market. (Hint: A quota allows the combined firms to supply any amount up to, but not exceeding, 680 units
total. Moreover, there are no restrictions on the price firms can charge.) Be sure to clearly draw a new market
supply curve in your graph that reflects the impact of this policy as a part of your answer.
How do the potential policies diverge in their welfare impacts?
c)
d)
Is the quota policy a Pareto improvement over the market equilibrium outcome before the quota/tax? Explain
your reasoning in no more than two sentences.

Definition Video Formula Definition Phenomenon in which market supply and demand balance each other. Market equilibrium is the economic state in which the market demand curve intersects the market supply curve, giving us the equilibrium price and equilibrium quantity for which a commodity can be sold and purchased in an economy. When market equilibrium is achieved, it suggests that all resources have been allocated efficiently and that there is just a distribution of income and resources in the economy. Video Formula

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