11. Understanding subsidies Suppose that in an attempt to protect its domestic movie industry, New Zealand's government subsidizes the production or consumption of domestically produced movies by giving each citizen a subsidy card. Each time citizens view a domestically made film, they swipe their cards and receive discounts of $6 off the price of ticket. The following graph represents the market for domestically made movies in New Zealand without any subsidy. Adjust the graph to show the effect of the $6 subsidy. PRICE (Dollars per ticket) 18 16 14 12 10 2 0 Supply D2 D₁ 036 9 12 15 18 21 24 QUANTITY (Millions of tickets per year) After the subsidy, the price producers receive is $12 government 27 30 " Demand Supply ? and the price paid by consumers is This subsidy program costs New Zealand's

11. Understanding subsidies Suppose that in an attempt to protect its domestic movie industry, New Zealand's government subsidizes the production or consumption of domestically produced movies by giving each citizen a subsidy card. Each time citizens view a domestically made film, they swipe their cards and receive discounts of $6 off the price of ticket. The following graph represents the market for domestically made movies in New Zealand without any subsidy. Adjust the graph to show the effect of the $6 subsidy. PRICE (Dollars per ticket) 18 16 14 12 10 2 0 Supply D2 D₁ 036 9 12 15 18 21 24 QUANTITY (Millions of tickets per year) After the subsidy, the price producers receive is $12 government 27 30 " Demand Supply ? and the price paid by consumers is This subsidy program costs New Zealand's

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter6: Supply, Demand And Government Policies

Section: Chapter Questions

Problem 10PA

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1. Consider the following policies, each of which is aimed at reducing violent crime by reducing the use of guns. Illustrate by demand and supply diagrams folowed with an explanation the effect of each of these proposed policies. [Hint: For each question, show the price paid by consumers, the price received by producers, and the quantity of guns sold, the difference between the price paid by consumers and the price received by producers, has the number of guns sold increased or decreased] ed at A tax on gun buyers a. b. A tax on gun sellers A binding price floor on guns с. d. A tax on gun ammunition
7. Effect of a tax on buyers and sellers The following graph shows the daily market for jeans. Suppose the government institutes a tax of s20.30 per pair. This places a wedge between the price buyers pay and the price sellers receive. 100 90 80 Demand Supply 70 50, 50 60 50 Тах Wedge 40 30 20 10 10 20 30 40 50 60 70 B0 90 100 QUANTITY (Pairs of jeans) Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity Price Buyers Pay Price Sellers Receive (Pairs of jeans) (Dollars per pair) (Dollars per pair) Before Tax After Tax Using the data you entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table. Tax Burden (Dollars per pair) Elasticity Buyers Sellers The burden of the tax falls more heavily on the elastic…
2. The following graph shows the demand and supply for i-Pods. Price 100 80 60 40 20 0 0 80 160 240 Quantity of i-pods 320 is D 400 a. What is equilibrium price and quantity? b. Suppose that a $20 per unit sales tax is placed on the product. What is the new equilibrium price and quantity? c. What proportion of the tax is paid by the consumer, and what proportion is paid by the seller in this case?
7. Effect of a tax on buyers and sellers The following graph shows the daily market for jeans. Suppose the govermment institutes a tax of $23.20 per pair. This plae price buyers pay and the price sellers recelve. 100 90 Supply Tax Wedge 50 40 30 20 10 Demand 10 20 40 50 60 70 100 QUANTITY (Pairs of jeans) R8S PRICE (Dollars per pair)
1. Price 10 D, 10 15 Quantity The above graph shows a market with a tax imposed on consumers of a good. (a) On the graph, shade or label the region equal to the deadweight loss of the tax. Calculate the size of the deadweight loss. (b) On the graph, shade or label the region equal to the tax revenue from the tax. Calculate the size of the tax revenue.
16. What is the difference between an agricultural export subsidy and an agricultural production subsidy?
Quantity Demande Price Quantit y Supplied 50 d $500 450 50 45 400 10 40 350 15 35 300 20 30 250 25 25 200 30 20 150 35 15 100 40 10 50 45 50 3. Using the same data from question one, suppose that the Australian government chooses to isue a $50 per TV subsidy to domestic producers. Show the impact of the subsidy using a supply and demand diagram. Identify the price domestic consumers pay after the subsidy, the quantity of TVs supplied by domestic producers, and the quantity of imports. b. Calculate consumer, producer surplus, the amount the government spends supporting the subsidy, and the dead weight loss.
4. Effect of quotas on local consumers and producers The following graph shows the U.S. domestic market for toys. PRICE() 20 -α- 18 Domestic Supply Domestic Demand 10 14 4412 18 24 30 34 Domestic Supply Ро Donaje Demand PH 42 QUANTITY (Mans of toys) 54 60 In the absence of trade with China, the equilibrium price of a toy is domestic quantity supplied equal million toys. At this price, both the domestic quantity demanded and the Suppose that trade between the United States and China is open and that the United States initially imposes no tariffs or quotas on toys imported from China. Assume that China has a comparative advantage in producing toys and charges the world price of $6 per toy. (Note: Throughout the problem, assume that the amount demanded by any one country does not affect the world price of toys.) On the graph, use the grey line (star symbol) to indicate the world price of toys. At the world price of $6 per toy, the quantity of toys demanded by U.S. buyers is milion toys,…
Question 7 Read the following scenario and answer the questions that follow. Scenario 4 In the market for cigarettes the impact of a specific excise tax of R10,00 is depicted in the diagram below. D ST Тах E 55,40 50,00 45,40 E2 21,00 ST S 11,00 Q 50 120 150 200 Packets per week (thousands) In the absence of any excise tax, a packet of cigarettes cost R50,00 and the equilibrium quantity is 150 000 packets per week. For scenario 4, discuss the impact of a specific excise tax of R10,00 in the market for cigarettes with reference to the provided diagram. Your discussion should incorporate the change in price received by suppliers and paid by consumers owing to the imposition of the specific excise tax. 7.1. Price per packet (R)
5. The current equilibrium price per pack of cigarettes is $4. Every day 40 million packs of cigarettes are sold. In order to recover some of the health care costs associated with smoking, the government imposes a tax of $2 per pack. This will raise the price to $5 per pack and reduce the quantity demanded to 30 million packs at that price, while the quantity supplied at$3 per pack is now 30 million packs. a. Draw a supply and demand diagram of cigarettes before the tax. Label CS and PS b. On a new diagram, show the effect that the tax has by labeling the following i. New consumer surplus ii. New producer surplus iii. Government revenue from excise tax iv. Deadweight loss
1. Assume that the demand for cigarettes is Qd=1600-30P and the supply of cigarettes is Qs=1400+70P: a. Calculate the equilibrium price and quantity and show them on a supplyand demand diagram. b. Suppose the government levies a $2 tax for each unit of cigarettes sold.Draw this on the diagram and calculate the new equilibrium price andquantity. c. Calculate the price elasticity of demand given these two price andquantity points. Is the demand for cigarettes price elastic or inelastic onthis part of the demand curve? Interpret the elasticity in words (i.e. If theprices rises by 10%, by what percentage will consumption fall?) d. On a graph, identify the tax revenue generated by this tax. e. Indicate each area on the graph with a letter and show in a table theconsumer surplus and the producer surplus before and after the tax. Also,indicate the deadweight loss associated with this tax. f. If your policy advisor boss wanted you to provide him/her witharguments in favor of this cigarette…
1. Consider the following policies, each of which is aimed at reducing violent crime by reducing the use of guns. Illustrate by demand and supply diagrams followed with an explanation the effect of each of these proposed policies. [Hint: For each question, show the price paid by consumers, the price received by producers, and the quantity of guns sold, the difference between the price paid by consumers and the price received by producers, has the number of guns sold increased or decreased] A tax on gun buyers а. b. A tax on gun sellers A binding price floor on guns с. d. A tax on gun ammunition