Study Guide for Microeconomics
9th Edition
ISBN: 9780134741123
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
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Chapter 9, Problem 3E
To determine
Identify the
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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.
Explain why consumer and producer surplus can be used to gauge the change in welfare caused by the export subsidy on individuals and firms.
In a competitive market, the following supply and demand equations are given:
Supply P = 5 + 0.36Q
Demand P = 100 - 0.04Q,
where P represents price per unit in dollars, and Q represents rate of sales in units per
Year.
1.
I.
Determine the equilibrium price and sales rate.
Determine the deadweight loss that would result if the government were to impose a price ceiling of £40 per unit.
The market supply and demand for solar panels are given respectively by QS = 80P – 5,000 and QD = 65,000 – 20P, where P is price per solar panel and Q measures the quantity of solar panels. Suppose the government provides a £100 subsidy per solar panel.
A. Calculate the price and equilibrium quantity before the government subsidy.
B. Calculate the post-subsidy equilibrium quantity, the prices consumers pay and the price producers receive
C. How much does the subsidy program cost the government? (3%)
Chapter 9 Solutions
Study Guide for Microeconomics
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- In recent years, the government of Pakistan has established a support price for wheat of about $0.20 per kilogram of wheat. At this price, consumers are willing to purchase 10 billion kilograms of wheat per year, while Pakistani farmers are willing to grow and harvest 18 billion kilograms of wheat per year. The government purchases and stores all surplus wheat. Suppose that the market-clearing price of Pakistani wheat in the absence of price supports is equal to $0.10 per kilogram. At this price, the quantity of wheat demanded is 12 billion kilograms. Under the government wheat price-support program, how much more is spent each year on wheat harvested in Pakistan than otherwise would have been spent in an unregulated market for Pakistani wheat?arrow_forwardThe table below shows the demand and supply schedule for gasoline in a hypothetical country called Microland. Price per litre ($) Quantity Demanded in 000 Quantity Supplied in 000 litres (per Month) litres (per month) 11 . 0 27 10 2 25 9 4 23 8 6 20 7 8 17 6 10 15 5 12 12 4 14 10 3 16 7 2 18 5 1 3 3 1a. Construct the demand and supply curves for gasoline to show the market equilibrium for gasoline. 1b. Given a new government policy in Microland, Gasoline producers have started to obtain subsidies from the government. Construct a NEW diagram to show the impact of the subsidy on the market equilibriumarrow_forwardThe analysis of a production subsidy to import-competing industry ( or a production subsidy) implies that ..... please select one or more : a) Domestic production will increase but total consumption will not decline. b) Consumers lose since domestic prices increase c) Consumer neither lose nor gain anything since market prices do not change d) The deadweight losses are higher compared to an export subsidy e) The market price will not changearrow_forward
- Governments often attempt to boost the income of some agricultural producers with a variety of policies. We will discuss this in depth later in the course, but two approaches often discussed in introductory economics courses are quotas and production subsidies. Using basic supply and demand analysis, discuss how these policies work with emphasis on their similarities and differences. Does the elasticity of demand matter when comparing the policies?arrow_forwardWhich of the following statement is false? A price ceiling that is set above the equilibrium price does not affect total surplus. A binding price floor always creates deadweight loss and always reduces both producer and consumer surplus. A price floor that is set above the equilibrium price creates a surplus. A binding price ceiling always decreases producer surplus but might increase or decrease consumer surplus. 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_forwardSuppose an additional "special" tax of $0.10 per litre is imposed on the sale of gasoline in one province. Prior to the tax the price was $1.30 per litre and 10 million litres of gasoline are sold per day. After imposition of the tax, the new equilibrium price and quantity are $1.38 per litre and 9.6 million litres per day. What is the direct burden of this "special" tax?arrow_forward
- Consider a market where supply and demand are given by QXS = -14 + PX and QXd = 82 - 2PX. Suppose the government imposes a price floor of $37, and agrees to purchase and discard any and all units consumers do not buy at the floor price of $37 per unit. Instructions: Enter your responses rounded to the nearest penny (two decimal places). a. Determine the cost to the government of buying firms’ unsold units.$ b. Compute the lost social welfare (deadweight loss) that stems from the $37 price floor.arrow_forwardCountry C imports 80,000 metric tons of steel from Country U and produces domestically 80,000 metric tons per year. The world price of steel is $500 per metric ton. Assuming linear schedules, research analysts estimated the price elasticity of domestic supply to be 0.50 and the price elasticity of domestic demand to be -0.25 in the current market equilibrium. Country C imposes an import duty of $150 per metric ton that caused the world price to fall by 10%. Analyse the effects of the consumer surplus, producer surplus, government revenue, and deadweight loss in the Country C steel market with the tariff. What are the terms of trade of the Country C steel market after the tariff was imposed? Explain the welfare effects of both countries.arrow_forwardSuppose now the government decides to increase the number of quotas available to 72 units, but it keeps the price support at the current level of $72. Calculate (I) the consumer surplus (ii) the producer surplus (iii) deadweight loss (iv) Which of the two options would be preferred by the producers (v) Which of the two options would be preferred by society as a whole.arrow_forward
- Which two policies that we discussed can create an excess burden? Price floors and price ceilings Price supports and subsidies Price floors and quotas on sellers Taxes and subsidiesarrow_forwardWhat is the difference between a price floor and price ceiling? According to the laws of demand and supply and how market equilibrium, efficiency, and equity are reached, do attempts to repeal those laws and market results with price floors and price ceilings justify legislative bodies to implement price controls? A price floor will lead to a transfer of consumer surplus to producer surplus; a price ceiling will lead to a transfer of producer surplus to consumer surplus; both price regulations lead to deadweight losses, which is a loss of surplus to society. Why?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. Draw the relevant graphs and solve for the equilibrium price and quantity and then use supply and demand curves to illustrate your answer. 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_forward
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