Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Question
Chapter 7, Problem 10P
To determine
The
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For the subsidy in the last question ($1000 per
month), what are: (a) the change in
consumer surplus; (b) the change in
producer surplus; (c) the government cost of
the subsidy; and (d) the
deadweight loss.
The demand and supply functions for box office movie rentals on satellite TV are given as:
Qd =200 000 -4 000P and Qs = 20 000 + 2 000P
3.1 Calculate the consumer and producer surplus in this market. If the government implements a price ceiling of $15 on the price of rental service, calculate the new levels of consumer and producer surplus. Are all consumers better off? Are producers better off?
Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and decreases producer surplus by $4,400. The deadweight loss of the tax is
$200.
$400.
$600.
$1,200.
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Similar questions
- Consider 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?arrow_forwardIf equilibrium is achieved in a competitive market where there is no government and tax the deadweight loss will equal the sum of consumer surplus and producer surplus. there is no deadweight loss. the deadweight loss will be the same as the opportunity cost the deadweight loss will be maximized.arrow_forwardPlease answer these two questions using the information from above: The government wants to increase production of this good. Would it make more sense to offer a subsidy or a tax? Based on your previous answers, would the government plan to increase production be likely to be effective or ineffective? Explain your answer.arrow_forward
- Consumer surplus is at maximum level when the government imposes tax on a good or service True / Falsearrow_forwardThe demand curve for wheat is Q=140−10p Supply curve is Q=10p. Equilibrium quantity is 70. Equilibrium price is $7. The government imposes a price ceiling of p=$3 per unit. Equilibrium quantity with the price ceiling is 30. What effect does this ceiling have on consumer surplus, producer surplus, and deadweight loss?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_forward
- a tax of $10 per ton of coal causes the price, inclusive of the tax, to increase from $60 per ton to $63 perton, and the quantity to decrease from 540 million tons to 500 million tons. what is the loss of consumer surplus? Producer surplus?arrow_forwardPlot the supply and demand functions on a sheet of graph paper. Suppose the government sets a price control for a pound of almonds at $14. On the graph, identify consumer surplus, producer surplus, and the deadweight loss.arrow_forward
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