Principles of Microeconomics
7th Edition
ISBN: 9781305156050
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 12, Problem 2CQQ
To determine
The deadweight loss and tax revenue.
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With examples or illustrations, explain any four conditions that can lead to market failure in Ghana.
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Finance
QUESTION 1: TAXATION
Suppose that the government of China decided to impose a per unit tax on the suppliers of salt.
a) Using a supply and demand model, show and explain the impact that the per-unit tax had on the equilibrium price and quantity of salt.
b) Using the diagram created for your answer to (a), show and explain what effect the per unit tax had on consumer surplus, producer surplus and deadweight loss.
c) List three reasons a government may impose a tax. Discuss the link between government revenue from taxation and elasticity of demand.
The market for pizza is characterized by a downward sloping demand curve and an upward sloping supply curve. Suppose that the government forces each pizza house to pay a Php2 tax on each pizza sold. Illustrate the effect of this tax on the pizza market. Label the consumer surplus, producer surplus, government revenue, and deadweight loss. How does each area compare to the pre-tax case?
Chapter 12 Solutions
Principles of Microeconomics
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- Multiple Choice Q2 Andy gives piano lessons. He has an opportunity cost of $50 per lesson and charges $60. He has two students: Bob, who has a willingness to pay of $70, and Carl, who has a willingness to pay of $90. When the government puts a $20 tax on piano lessons and Andy raises his price to $80, the deadweight loss is O $10, $20 O $10, $40 O $20, $20 O $20, $40 and the tax revenue isarrow_forwardPlease solve 4th,5th,6th Suppose the world price for a good is 100 and the domestic demand-and supply curves are given by the following equations Demand: P=160-Q Supply: P= 10 + 15Q How much is consumed? How much is produced at home? What are the values of consumer and producer surplus? If a tariff of 10 percent is imposed, by how much do consumption and dopest production change? What is the change in consumer and producer surplus? How much revenue does the government earn from tariff?arrow_forward44. Consider a good which provides benefits to a large number of people and excluding anyone from using the good is almost impossible. The market for this good will likely - be limited to a small number of units produced. - be provided by a private firm rather than the government. - produce and consume too much of the good. - have a free-rider problem with people refusing to pay for consuming the good.arrow_forward
- 22. What public correction would be needed to eliminate the dry loss caused by steel production? A. Subsidies to steel buyers. B. The levying of a tax on steel producers. C. Subsidies to steel producers. D. The levying of a tax on steel buyers.arrow_forwardSuppose Luke values a scoop of Italian gelato at $4. Leia values a scoop of Italian gelato at $6. The pre-tax price of a scoop of Italian gelato is $2. The government imposes a per unit tax of $3 on each scoop of Italian gelato, and the price rises to $5. The deadweight loss from the tax is a- $4. b- $2. c- $1. d- $3.arrow_forwardFigure A-1 represents the market for ice cream before and after a per-scoop tax. What area represents the tax revenue generated? Group of answer choices x + y x + y + z w + x + y + z x + y + zarrow_forward
- The banana industry was a market failure in St. Vincent and the Grenadines. (i) What type of market failure is it? (ii) Which government policy would yield the efficient outcome andchow does the process through which the implementation of the governmentpolicy lead to the optimal outcome. (iii) How does the imposition of the chosen government policy impactconsumer surplus, producer surplus and total surplus in this scenario?arrow_forwardThe market for cookies is represented by the following supply and demand conditions: QD =1,000 – 200P and QS = 400P – 200, where P is the £ price per box of cookies and Q measures boxes per day. Suppose the government places a quota on cookies of 500 boxes per day. Solve for the equilibrium price and quantity and then use supply and demand curves to illustrate your answer. Calculate consumer surplus before and after the quota. Calculate producer surplus before and after the quota. Calculate the deadweight loss (excess burden) from the quota.arrow_forward1. If trade is not allowed, what is the equilibrium price and quantity in this market?2. If trade is allowed, will this country import or export this commodity? Why?3. If trade is allowed, what is the price at which the good is sold, the domestic quantity supplied and demanded, and the quantity imported or exported?4. What area corresponds to consumer surplus if no trade is allowed?5. What area corresponds to consumer surplus if trade is allowed?6. What area corresponds to producer surplus if no trade is allowed?7. What area corresponds to producer surplus if trade is allowed?8. If free trade is allowed, who gains and who loses, the consumers or the producers, and what area corresponds to their gain or loss?9. What area corresponds to the gains from trade?arrow_forward
- Please no written by hand solutions 1.Discuss the five properties of a good tax system 2. Discuss why there are inefficiencies in the consumption of public good. 3. Discuss the key functions of the government.arrow_forward1. The United States currently imports all of its coffee. The annual demand for coffee by U.S. consumers is given by the demand curve Q = 250 – 10P, where Q is quantity (in millions of pounds) and P is the market price per pound of coffee. World producers can harvest and ship coffee to U.S. distributors at a constant marginal (= average) cost of $8 per pound. U.S. distributors can in turn distribute coffee for a constant $2 per pound. The U.S. coffee market is competitive. Congress is considering a tariff on coffee imports of $2 per pound. a. If there is no tariff, how much do consumers pay for a pound of coffee? What is the quantity demanded? b. If the tariff is imposed, how much will consumers pay for a pound of coffee? What is the quantity demanded? c. Calculate the lost consumer surplus. d. Calculate the tax revenue collected by the government. e. Does the tariff result in a net gain or a net loss to society as a whole?arrow_forwardThe U.S. subsidizes domestic farmers to ensure that they remain profitable and continue to produce agricultural products. Explain the main argument for ensuring domestic production of agriculture products (even though domestic-produced agriculture costs buyers more than foreign-produced agriculture) and not needing to rely 100% on foreign-produced agriculture. Who are the "winners" of the farming subsidies? How do they benefit? Who are the "losers" of the farming subsidies? What does it cost them?arrow_forward
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