The demand and supply in the market for textbooks are described by the following equations: Q D = 200 - P QS = 2P 40 - The government is considering a unit tax of 30 dollars on textbooks. (a) Draw a supply and demand diagram. Label on your diagram the following: The free-market equilibrium price P * and quantity Q* . The quantity bought and sold with the tax in place QT The deadweight loss, as a shaded area (b) Find a numerical value for the deadweight loss caused by the tax. The government scraps the plan for a tax and instead proposes a 50-dollar price ceiling on textbooks. (c) Draw a supply and demand diagram. Label on your diagram the following: The free-market equilibrium price P * and quantity Q* . The quantity demanded with the price ceiling in place QD The quantity supplied with the price ceiling in place QS The consumer surplus with the price ceiling in place, as a shaded area (d) Are consumers better off with the price ceiling in place? Justify your answer by calculating the change in consumer surplus when the price ceiling takes effect.

Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter6: Supply, Demand And Government Policies
Section: Chapter Questions
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The demand and supply in the market for
textbooks are described by the following
equations:
Q D = 200 - P
QS2P 40
The government is considering a unit tax of 30
dollars on textbooks.
(a) Draw a supply and demand diagram. Label
on your diagram the following:
The free-market equilibrium price P * and
quantity Q* .
The quantity bought and sold with the tax in
place QT
The deadweight loss, as a shaded area
(b) Find a numerical value for the deadweight
loss caused by the tax.
The government scraps the plan for a tax and
instead proposes a 50-dollar price ceiling on
textbooks.
(c) Draw a supply and demand diagram. Label
on your diagram the following:
The free-market equilibrium price P * and
quantity Q* .
The quantity demanded with the price ceiling
in place QD
The quantity supplied with the price ceiling in
place QS
The consumer surplus with the price ceiling in
place, as a shaded area
(d) Are consumers better off with the price
ceiling in place? Justify your answer by
calculating the change in consumer surplus
when the price ceiling takes effect.
[You may assume that, with a price ceiling, the
textbooks go to the consumers with the
highest willingness to pay.]
Transcribed Image Text:The demand and supply in the market for textbooks are described by the following equations: Q D = 200 - P QS2P 40 The government is considering a unit tax of 30 dollars on textbooks. (a) Draw a supply and demand diagram. Label on your diagram the following: The free-market equilibrium price P * and quantity Q* . The quantity bought and sold with the tax in place QT The deadweight loss, as a shaded area (b) Find a numerical value for the deadweight loss caused by the tax. The government scraps the plan for a tax and instead proposes a 50-dollar price ceiling on textbooks. (c) Draw a supply and demand diagram. Label on your diagram the following: The free-market equilibrium price P * and quantity Q* . The quantity demanded with the price ceiling in place QD The quantity supplied with the price ceiling in place QS The consumer surplus with the price ceiling in place, as a shaded area (d) Are consumers better off with the price ceiling in place? Justify your answer by calculating the change in consumer surplus when the price ceiling takes effect. [You may assume that, with a price ceiling, the textbooks go to the consumers with the highest willingness to pay.]
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