You should draw graphs and calculate all the equilibrium price/quantity and social welfare area to explain if there is any. Practice question 2-1 Consider the ice cream market in Madison. In July, the ice cream market demand and supply curves are given by the following equations where Q is the quantity to ice cream units and P is the price in dollars per unit of ice cream: Demand: P = 1400 - Q/10 Supply: P = Q/20 - 100 a) Find the equilibrium price and quantity of ice cream in July. b) Suppose that the city of Madison imposes on producers an excise tax of $15 per unit of ice cream. How would the price for producers, price for consumers change? Calculate the new equilibrium price and quantity after tax imposed. c) Following question b), how much is the consumer surplus, producer surplus, government revenue, deadweight loss, and total surplus before and after? Calculate CS, PS, government revenue, deadweight loss, and total surplus before and after the tax policy. Label the areas on the graph and explain why there is deadweight loss.
You should draw graphs and calculate all the equilibrium price/quantity and social welfare area to explain if there is any. Practice question 2-1 Consider the ice cream market in Madison. In July, the ice cream market demand and supply curves are given by the following equations where Q is the quantity to ice cream units and P is the price in dollars per unit of ice cream: Demand: P = 1400 - Q/10 Supply: P = Q/20 - 100 a) Find the equilibrium price and quantity of ice cream in July. b) Suppose that the city of Madison imposes on producers an excise tax of $15 per unit of ice cream. How would the price for producers, price for consumers change? Calculate the new equilibrium price and quantity after tax imposed. c) Following question b), how much is the consumer surplus, producer surplus, government revenue, deadweight loss, and total surplus before and after? Calculate CS, PS, government revenue, deadweight loss, and total surplus before and after the tax policy. Label the areas on the graph and explain why there is deadweight loss.
Chapter4: Markets In Action
Section: Chapter Questions
Problem 1SQP
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