EBK PRINCIPLES OF MICROECONOMICS
7th Edition
ISBN: 8220101472380
Author: Mankiw
Publisher: CENGAGE L
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Chapter 12, Problem 2CQQ
To determine
The deadweight loss and tax revenue.
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Suppose the world price of oil is $15 per barrel. At that price, the United States imports 400 million barrels daily and consumes 600 million barrels daily. The government then imposes a $5 per barrel tax on oil imports. For every dollar increase in oil prices, domestic consumption decreases by 20 million barrels per day, while domestic production increases by 40 million barrels per day.
3. What will be the cost of inefficient production, loss in consumer surplus, and deadweight loss? Use a diagram to help answer the question.
Carrie is willing to pay $1400 for the new Samsung Galaxy phone. Samsung is selling the new Galaxy phone for $1200. It costs Samsung $600 to produce this phone. The total economic surplus if Carrie purchases this phone is $________.
There are four consumers willing to pay the following amounts for haircuts:
A: $7
В: $2
С: $8
and D: $5
There are four haircutting businesses with the following costs;
Firm 1: $3
Firm 2: $6
Firm 3: $4
and Firm 4: $2
Each firm has the capacity to produce only one haircut. For efficiency how many haircuts can be
given? Also find out how large will be the total surplus.
Chapter 12 Solutions
EBK PRINCIPLES OF MICROECONOMICS
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- The market for wheat is perfectly competitive with the typical market demand and supply curves. The government imposes a binding minimum price of wheat on the market. The government promises to buy any resulting excess supply of wheat. However, because they just keep it in a warehouse, the Marginal Benefit of any wheat the government buys is zero. With the minimum price and the government buying excess supply, Consumer Surplus _____ and Market Surplus _____. A. increases; says the same or increases. B. increases; increases. C. could increase or decrease; decreases. D. could increase or decrease; stays the same or increases. E. stays the same; decreases.arrow_forwardCarrie is willing to pay $1400 for the new Samsung Galaxy phone. Samsung is selling the new Galaxy phone for $1200. It costs Samsung $600 to produce this phone. The total economic surplus if Carrie purchases this phone is $________. Im not sure which one is right one individual said onsumer surplus = 1/2(willing to pay - selling price ) *quantity CS = 1/2 ( 1400 - 1200) *1 CS = 100 Producer surplus = 1/2( selling price - willing to receive)*quantity PS = 1/2 ( 1200-600)*1 PS =300 total economic surplus = PS +CS = 400 and another said According to the given information, total economic surplus would be: =12×Maximum willingness to pay-Minimum Willingness to accept×quantity sold=12×$1400-$600×1=$400=$800arrow_forwardQUESTION 19 The original equilibrium of a market is at price $20 and quantity 20. If a tax of $10 is imposed and producers receive a net price of $18, how much (in dollars) is the tax burden on producers? 2arrow_forward
- The graph shown portrays a subsidy to buyers. After the subsidy is in place, the post-subsidy price paid by buyers is post-subsidy price received by sellers is _________ the difference between these two figures is the amount of_ P 46 40 30 24 A $30; $46; the subsidy (B) $24; $40; government revenue C$24; $40; the subsidy (D) $40; $24; the subsidy E₁ 100 E2 150 S -D2 D. and thearrow_forward(a) Explain why consumer and producer surplus can be used to gauge the change in welfare caused by the export subsidy on individuals and firms.arrow_forwardThere are two consumers, Andy and Ben, in the market for pumpkins. Their willingness to pay for each pumpkin is shown in the table Pumpkin Market. There are two producers of pumpkins, Cindy and Diane, and their costs are also shown. The equilibrium price for pumpkins is $8 and the equilibrium quantity is 5. At the equilibrium price and quantity, Cindy sells pumpkins, and her producer surplus is______ Andy's Quantity of willingness to Pumpkins pay 1st pumpkin $12 2nd pumpkin 3rd pumpkin 8 4th pumpkin 6 A) four; $2 10 B) three; $81 C) two: $ D) one; $5 Ben's willingness Cindy's to pay cost $11 9 7 5 $3 00 10 Diane's cost $4 11arrow_forward
- 4arrow_forwardQuestion 4 Suppose Home is a small exporter of wheat. At the world price of 100 US dollars per tonne, Home growers export 20 tons of wheat. Now suppose the Home government decides to support its domestic producers with an specific export subsidy of 40 US dollars per tonne. Use Figure 1 to answer the following questions: Figure 1: Supply and Demand for Wheat at Home Home price X 40 140 100 10 20 50 Supply Demand Quantity (a) Explain why consumer and producer surplus can be used to gauge the change in welfare caused by the export subsidy on individuals and firms. (b) What is the quantity exported by Home under free trade and with the export subsidy? (c) Calculate the effect of the export subsidy on consumer surplus, producer surplus and government revenue; depict each of these in a graph. What is the overall net effect of the export subsidy on Home welfare?arrow_forwardQ1. A market is characterized by the demand function is given by Qa= 1,080 – 3P and the supply function Qs= 6P – 360 respectively. (c) The government now establishes a $60 subsidy for buyers every time they purchase a unit of the good. How much tax-payer money will the government spend to support this policy? What is the size of the deadweight loss generated by the subsidy? (d) Firms can now export at an international price of $240 per unit. How many units are exported? How much are the gains from trade?arrow_forward
- Only typed answerarrow_forwardSuppose the market demand for milk is Qd = 40 – 4P Where Qd is millions of gallons demanded and P is price per gallon. Suppose the market supply for milk is Qs = - 40/3 + 20/3P Suppose a tax of $1 per gallon of milk is imposed in this market. What is the new price paid by consumers and What is the quantity of milk sold? *Hint: It does not matter if the tax is collected from purchasers or sellers.arrow_forward8. Suppose we want regular cars to be gradually replaced by electric cars. There are several kinds of government interventions that could be used to make this happen, or at least to push the car market to produce and sell more electric cars. Explain how a tax could be used for this purpose, and then explain how a subsidy could be used for this purpose.arrow_forward
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