Use the table to answer the questions. The table depicts several policy options and their effects on the market for cotton. Type all of your answers in the space below; please mark your answers clearly. Free Market Price Ceiling of $4 Price Floor of $10 Tax of $4 Subsidy of $2 $4 $10 60 34 24 93 Price $7.80 Qd 50 Qs Pe Qe Pb Ps CS PS RM DWL 50 $7.80 50 $7.80 $7.80 $295 $205 0 $9.80 40 $9.80 $6.80 $5.80 $8.80 $240 $505 $15 $188 15 toe few 20 too many $30 $8.80 70 $270 $136 $24 $191 26 too few 16 too few 0 $254 $42 $20 a. Did the ceiling help consumers? Explain using two relevant variables above. b. Did the floor help producers? Explain using two relevant variables above. c. Suppose that the government takes the tax revenue they earn and gives it to consumers. Does this cover the "damage" done to them? Show how you found this. d. Which policy above does least damage to Total Surplus? How much damage is this? e. The resource misallocation of 16 too many from the subsidy represents customers leaving other markets for this one. Name two of these possible markets. f. Who pays a larger share of the tax, buyers or sellers? Show how you found this. g. Who is more responsive to price changes, buyers or sellers? How did you determine this? Cite all relevant variables that can be used to answer this question.
Use the table to answer the questions. The table depicts several policy options and their effects on the market for cotton. Type all of your answers in the space below; please mark your answers clearly. Free Market Price Ceiling of $4 Price Floor of $10 Tax of $4 Subsidy of $2 $4 $10 60 34 24 93 Price $7.80 Qd 50 Qs Pe Qe Pb Ps CS PS RM DWL 50 $7.80 50 $7.80 $7.80 $295 $205 0 $9.80 40 $9.80 $6.80 $5.80 $8.80 $240 $505 $15 $188 15 toe few 20 too many $30 $8.80 70 $270 $136 $24 $191 26 too few 16 too few 0 $254 $42 $20 a. Did the ceiling help consumers? Explain using two relevant variables above. b. Did the floor help producers? Explain using two relevant variables above. c. Suppose that the government takes the tax revenue they earn and gives it to consumers. Does this cover the "damage" done to them? Show how you found this. d. Which policy above does least damage to Total Surplus? How much damage is this? e. The resource misallocation of 16 too many from the subsidy represents customers leaving other markets for this one. Name two of these possible markets. f. Who pays a larger share of the tax, buyers or sellers? Show how you found this. g. Who is more responsive to price changes, buyers or sellers? How did you determine this? Cite all relevant variables that can be used to answer this question.
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter6: Supply, Demand And Government Policies
Section: Chapter Questions
Problem 10PA
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Transcribed Image Text:Use the table to answer the questions. The table depicts several policy options and their effects on the
market for cotton. Type all of your answers in the space below; please mark your answers clearly.
Free Market Price Ceiling of $4 Price Floor of $10 Tax of $4 Subsidy of $2
$4
$10
60
34
24
93
Price $7.80
50
50
$7.80
50
$7.80
$7.80
$295
$205
0
Qd
Qs
Pe
Qe
Pb
Ps
CS
PS
RM
DWL
$9.80
40
$9.80
$5.80
$270
$136
$240
$24
$191
$15
26 too few
16 too few
15 too few 20 too many
0
$254
$42
$30
$20
a. Did the ceiling help consumers? Explain using two relevant variables above.
b. Did the floor help producers? Explain using two relevant variables above.
c. Suppose that the government takes the tax revenue they earn and gives it to consumers. Does this
cover the "damage" done to them? Show how you found this.
$8.80
70
$6.80
$8.80
$505
$188
D
d. Which policy above does least damage to Total Surplus? How much damage is this?
e. The resource misallocation of 16 too many from the subsidy represents customers leaving other
markets for this one. Name two of these possible markets.
f. Who pays a larger share of the tax, buyers or sellers? Show how you found this.
g. Who is more responsive to price changes, buyers or sellers? How did you determine this? Cite all
relevant variables that can be used to answer this question.
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VIEWStep 3: Explain effect of price floor:
VIEWStep 4: Calculate tax revenue:
VIEWStep 5: Explain the least damaging policy:
VIEWStep 6: Name two markets:
VIEWStep 7: Calculate share of tax:
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