Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 16, Problem 4P
A
To determine
The gain and losses from price support in the given case using a
B
To determine
The gain and losses from price support in the given case using a supply-demand diagram.
C
To determine
The gain and losses from price support in the given case using a supply-demand diagram.
D
To determine
The gain and losses from price support in the given case using a supply-demand diagram.
E
To determine
The gain and losses from price support in the given case using a supply-demand diagram.
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(Distribution of Costs and Benefits) Suppose that the government decides to guarantee an above-market price for a good by buying up any surplus at that above-market price. Using a conventional supply-demand diagram, illustrate the following gains and losses from such a price support: a. The loss of consumer surplus b. The gain of producer surplus in the short run c. The cost of running the government program (assuming no storage costs) d. What is the total cost of the program to consumers? e. Are the costs and benefits of the support program widespread or concentrated?
Question 2(a) What is the difference between a quota and a subsidy?(b) Explain, using a demand and supply diagram, what effect is likely to occur in a market if the government introduces a subsidy in the production of a good.(c) Discuss whether the elasticity of supply of manufactured goods is likely to be greater than the elasticity of supply of agricultural goods.(d) Can a business change the price elasticity of its demand? If yes, how?(e) How would the knowledge of PED and PES be useful for a farmer?Question 3Major news channel in the country reports that ‘Inflation has been kept at 2 % for the past year which is the lowest it has been for three years. Unemployment has also decreased.’(a) According to this statement, what has happened to the price levels in the country over past three years?(b) Explain what is inflation and how is it measured?(c) Analyze why a reduction in interest rate may cause inflation?(d) Is inflation always bad? What is likely to happen if a country has…
The market supply and demand for a product are shown in the diagram below.
(a) Is the price elasticity of supply less than one, equal to one, or greater than one? Explain.
(b) Calculate consumer surplus at the equilibrium price. Show your work.
(c) Now suppose the government imposes a per-unit tax of $1 on producers.
(i) What happens to total revenue received by producers after they pay the tax to the government? Explain.
(ii) Will producer surplus increase, decrease, or stay the same?
(iii) Will total surplus increase, decrease, or stay the same? Explain.
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