Exploring Economics

8th Edition

ISBN: 9781544336329

Author: Robert L. Sexton

Publisher: SAGE Publications, Inc

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Considermarketforagoodcharacterizedbythefollowinginverse demand and supply functions: PX = 10 − 2QX and PX = 2 + 2QX.a. Compute the surplus received by consumers and producers.b. Now suppose all manufacturers of this good are to pay a lump tax of $0.10that will be used by the government regulators to defray some of the environmental cost imposed by this good’s production. What will be the new surplus received by consumers and producers?c. Based on your results in part ‘b’ above, how will you evaluate the impact of this tax policy on the society? Explain

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In Example 9.1 LOADING... , we calculated the gains and losses from price controls on natural gas and found that there was a deadweight loss of $5.68 billion. This calculation was based on a price of oil of $50 per barrel and utilized the following equations: Supply: QS = 15.90 + 0.72PG + 0.05PO Demand: QD = 0.02minus 1.8PG + 0.69PO where QS and QD are the quantities supplied and demanded, each measured in trillion cubic feet (Tcf), PG is the price of natural gas in dollars per thousand cubic feet ($/mcf), and PO is the price of oil in dollars per barrel ($/b). If the price of oil were $65.00 per barrel, what would be the free-market price of gas? With a $65.00 price of oil per barrel, the free-market price of gas would be $nothing per thousand cubic foot. (Enter your response rounded to two decimal places.)

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Suppose price is 5 percent above equilibrium intwo markets: a market for a necessity and a marketfor a luxury good. All else equal (including supplyconditions), in which market do you expect deadweight loss to be greater? Explain.

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Many governments subsidise electric vehicles. Draw two sup- ply and demand diagrams (one for electric vehicles and one for petrol- powered vehicles) to show the impact of an electric vehicle subsidy. As- sume that an increase in electric vehicles sales reduces petrol powered vehicles by the same amount. On these diagrams show:
(a) The quantity of both types of vehicles before the subsidy.
(b) The quantity of both types of vehicles after the subsidy.
(c) The deadweight losses in both markets before and after the subsidy.
4. is a fuel excise or an electric vehicle subsidy a better policy response to address externalities associated with driving? Your answer should draw on the answers above and could also include:
Which policy is simpler to administer.
How the two policies impact use of other forms of transport (like public transport or riding a bike).
Which policy is fairer.
Any additional information that you would like to know to inform your decision
Note:-
Do not provide…

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•A market has the market supply equation as P = ½Q andthe demand equation as P = 6 ½Q, where P is price indollars and Q is the quantity.•••(a) Solve for the equilibrium price, the equilibrium quantity,the consumer surplus and the producer surplus in themarket. Support your answers with a suitable marketdiagram.•••(b) If there is a price ceiling of $2, compute the consumersurplus, producer surplus and the deadweight loss in themarket. Support your answers with a suitable marketdiagram.

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.12) In the effort to reduce alcohol consumption, the
government is considering a $1 tax on each gallon of liquor sold. The legal incidence of the tax
will be on producers. Suppose the demand for alcohol is described by Q
D
= 500,000 – 20,000*P
where Q
D
is quantity and P is price per gallon (NOTE: the
inverse
demand curve would be P = 25
– 0.00005*Q
D
). The supply curve is described at Q
S
= 30,000*P (NOTE: This would make the MC
curve MC = (1/30,000)*Q
S
).
a.
Draw the supply and demand curves before the tax is imposed. Calculate the
equilibrium price and quantity.
b.
Add the tax to the supply curve. Calculate the new price per gallon consumers pay, the
price per gallon producers receive, and the new equilibrium quantity.
c.
Calculate the amount of revenue the tax generates. How much of the tax is paid by
consumers? How much of the tax is paid by producers?
d.
Calculate the elasticity of demand at the original equilibrium price. Calculate the
elasticity of supply at the original…

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12) In the effort to reduce alcohol consumption, the
government is considering a $1 tax on each gallon of liquor sold. The legal incidence of the tax
will be on producers. Suppose the demand for alcohol is described by Q
D
= 500,000 – 20,000*P
where Q
D
is quantity and P is price per gallon (NOTE: the
inverse
demand curve would be P = 25
– 0.00005*Q
D
). The supply curve is described at Q
S
= 30,000*P (NOTE: This would make the MC
curve MC = (1/30,000)*Q
S
).
D.
Calculate the elasticity of demand at the original equilibrium price. Calculate the
elasticity of supply at the original equilibrium price.
e.
Calculate the deadweight loss of the tax.
f.
Suppose that if you were to disaggregate the market demand into young drinkers and
old drinkers you would find that the demand for alcohol is more elastic among young
drinkers than old drinkers. Which group of drinkers will change their behavior more?
Which group of drinkers will bear the bigger burden of the proportion of the tax that…

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On a generic supply-demand graph, show the deadweight loss ( DWL) of a price ceiling that is placed below the equilibrium price for a product ( you should assume that there are NO externalities associated with the product).

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Suppose the demand and the supply for lumber (harvested wood processed in a sawmill) used for construction in Australia are given byQD =100 – 2PQS = 1/2PAssume also that the market is perfectly competitive.
the government introduces a subsidy of s=5 per unit of lumber transacted in the market. Calculate the deadweight loss caused by the subsidy and illustrate it in a graph.
Who benefits more from the subsidy, consumers or producers? Why?

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6) If Mark sells the profit-maximizing quantity, what would the deadweight loss created by the negative externality be?

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Suppose that the demand curve for cigarettes in Euroland is given by QD = 26.9 − 1.71P , and that the supply curve is given by QS = 9.62 + 2.13P. The equilibrium price is €4.50 and the equilbrium quantity is 19.2.The government is thinking about imposing a tax of €0.40 on cigarettes.The price that suppliers will receive after the tax is €4.10€4.32€4.72€4.50

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2. Consider a competitive market characterized by the following marketdemand and supply curves.Qd=10000-10P Qs=40P-2000If the government enacts a binding price floor at 500, calculate the resultingconsumer surplus, producer surplus, and deadweight loss.Hint: a diagram might help. Show your work.

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