Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Question
Chapter 14, Problem 14.8P
a)
To determine
To discuss the reason for lump-sum subsidy not helping government achieve its goal.
b)
To determine
To show graphically how per-unit subsidy will help the government achieve its goal.
c)
To determine
To show that
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a. Does the market provide an efficient amount of effort?
b. The teacher of the course is considering to implement a tax-cum-subsidy policy in order to enhance effort in the course. Suppose he seeks advice from you. He proposes to subsidize effort at the rates, meaning that putting G, units of time into working on the problem sets will feel less, concretely, only like putting (1-s)G, units of time. In order to subsidize effort, he will tax students' time at the rate t, so the total available time will become(1-1)W₁. What tax-subsidy combination would you propose in order to implement the social optimum while keeping budget balance?
Please written by computer source Suppose that the demand curve for a product is given by Q = 100 −10p and the supply curve is Q = 10p. Assume that income effects (elasticities) are small so consumer surplus is a good measure of consumer welfare.
(a) What is the equilibrium price and quantity with no distortions? (b) The government imposes a tax of $2.00 per unit sold. What is the new equilibrium quantity? Sketch the market equilibrium in a graph. (c) Given the tax what is the change in consumer surplus? What is the change in producer surplus? What is the change in government revenue? What is the net Dead Weight Loss from the tax? (d) Say the government proposes to use the revenue from the tax to pay for snacks in our last ECON 312A lecture. The total social benefits from the snacks would be $82.00. Will the tax increase overall welfare if the revenue is used to buy the snacks? What is the dollar value of the net gain or loss to society?
Suppose the price elasticity of demand for smartphones is 0.5 (absolute value), while the price elasticity of supply is 1.9. If the government imposes a per-unit tax of $100 on the sellers of smartphones, how will the price and quantity transacted of smartphones change? Will the sellers or the buyers bear a larger tax burden? Will the market be able to achieve economic efficiency after the tax is imposed? Explain with a diagram.
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- This chapter analyzed the welfare effects of a tax on agood. Now consider the opposite policy. Suppose thatthe government subsidizes a good: For each unit of thegood sold, the government pays $2 to the buyer. Howdoes the subsidy affect consumer surplus, producersurplus, tax revenue, and total surplus? Does asubsidy lead to a deadweight loss? Explain.arrow_forwardConsider a free market with demand equal to QQ = 900 − 10PP and supply equal to QQ = 20PP. Now the government imposes a $15 per unit subsidy on the production of the good. What is the consumersurplus now? The producer surplus? Why is there a deadweight loss associated with the subsidy, and whatis the size of this loss? Demonstrate in a graph.arrow_forwardSuppose the demand curve for gasoline is more elastic than the supply curve for gasoline. If the government imposes a tax on gas stations (gasoline sellers), which party (buyers or sellers) will bear more of the tax burden? How will the tax burden change if the government imposed the tax on gasoline consumers, rather than sellers?arrow_forward
- Suppose the government of the island has decided to make tomatoes more affordable to consumers by imposing a fixed per unit subsidy. Thus, start with the original demand (Qd = 50 – 5P) and supply (Qs = 5P – 25) and analyze this new intervention, the subsidy. The subsidy works like this: tomato sellers receive a $4 refund from the government for each kilogram of tomatoes they sell to consumers. What is the price that the producers will effectively earn for their tomatoes, inclusive of the subsidy? How much will the government spend on tomato subsidies in this case in total? (Recall the units of measurement: P is the price in dollars per kilogram of tomatoes; and Q is the quantity of tomatoes, expressed in thousands of kilograms.) Produce a new graph depicting the new, post-subsidy equilibrium complete with (solved) values for the new price and quantity. Please include the original supply curve in this graph, in addition to the new “effective supply” curve; and clearly label the shift…arrow_forwardEducation benefits society as a whole. That is why, among other things, studies at colleges and universities are subsidized: Students pay for the semester ticket, while the state covers the cost of courses, among other things. Assume that the subsidy is paid as a fixed amount per student.4a) What is the form of market failure that economically justifies the education subsidy? Briefly justify your answer.4b) What is the effect of the subsidy and what are its welfare effects? Assume an optimally designed subsidy and give reasons for your answer.4c) Does it make a difference whether the subsidy is earmarked and paid directly to the students or to the respective university? Give reasons for your answer.arrow_forwardSuppose the demand curve for gasoline is more elastic than the supply curve for gasoline. If the government imposes a tax on gas stations (gasoline sellers), which party (buyers or sellers) will bear more of the tax burden? How will the tax burden change if the government imposed the tax on gasoline consumers, rather than sellers? explain in simple terms.arrow_forward
- HELP ME WITH PART B PLEASE BY SHOWING IN A DIAGRAM a. The elasticity of demand for beer in country A is 1.8 and the elasticity ofdemand for beer in country B is 1.7. Suppose that the supply of beer isthe same in both countries and that both countries impose the same levelof tax on beer. Does the consumer in country A share more burden of tax?b. ii. Suppose the demand curve for sugar is Q = 60 − 3P and the supply curveis Q = 2P. Suppose the government announces a per-unit tax of 1 on theprice of sugar. What is the deadweight loss from the tax?arrow_forwardfourth task) Education benefits society as a whole. That is why, among other things, studies at colleges and universities are subsidized: Students pay for the semester ticket, while the state covers the cost of courses, among other things. Assume that the subsidy is paid as a fixed amount per student.4a) What is the form of market failure that economically justifies the education subsidy? Briefly justify your answer. 4b) What is the effect of the subsidy and what are its welfare effects? Assume an optimally designed subsidy and give reasons for your answer. 4c) Does it make a difference whether the subsidy is earmarked and paid directly to the students or to the respective university? Give reasons for your answer.arrow_forward1. Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased. a. Is there any inefficiency, and if so, can you define it and label it on the graph? b. If the producer has an inelastic supply curve, which market participant has the bigger tax burden? Explain.arrow_forward
- 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…arrow_forwarda: Illustrate an example of your choice and discuss consumer surplus, producer surplus, Total surplus, and deadweight loss with the help of the graphs. b. Calculate the consumer surplus, producer surplus, and total surplus in a market of airplane tickets if the Equilibrium price per ticket is SAR 160, the equilibrium Quantity is 80 tickets, the upper intercept of the demand curve on the y-axis is SAR 400 and lower intercept of the supply curve on the y-axis is zero. What will be the dead weight loss if the government imposes a tax of SAR 80 per ticket and the buyer and sellers share the tax of 50 percent each? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwarda: Illustrate an example of your choice and discuss consumer surplus, producer surplus, Total surplus, and deadweight loss with the help of the graphs. b: Calculate the consumer surplus, producer surplus, and total surplus in a market of airplane tickets if the Equilibrium price per ticket is SAR 160, the equilibrium Quantity is 80 tickets, the upper intercept of the demand curve on the y-axis is SAR 400 and lower intercept of the supply curve on the y-axis is zero. What will be the dead weight loss if the government imposes a tax of SAR 80 per ticket and the buyer and sellers share the tax of 50 percent each? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism Answer completely. Itreid with chatgpt and calculation was wrong and got zero,so please answer accuracy is top priorities You will get up vote for sure if answer is perfect .arrow_forward
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