Consider a perfectly competitive market with inverse market supply P=5+30' and inverse market demand P=50-20. Suppose the government subsidizes this market with a subsidy of $5 per unit. What is the deadweight loss resulting from the subsidy? 0, subsidies do not have a deadweight loss a) b) 2.5 c) d) 7.5
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- 1. The government wishes to encourage students to become more literate in economics and is therefore giving a S10 per unit subsidy to the purchasers of microeconomics textbooks. Given the following demand and supply, what are the economic effects of this subsidy? Illustrate with a diagram. Show work. P= 100 - Qa P= 20 + 3Q. (1) (2) Original Price Original Output New Price Consumer Pays New Output New Price Producer Receives Benefit to consumer Benefit to producer Cost to government23. Consider a competitive market for 'new build' homes. The demand and supply functions for this market are given by = 900 - 2p QD= 1 + zp (a) Find the equilibrium Q and p in this market. Suppose that the government want to increase the number of individuals who own a house. They are planning to subsidise transactions in this market to increase Q by 20%. (b) What is the level of subsidy (x) which is required? (c) What would be the change in producer surplus from the subsidy? Is this larger than the change in consumer surplus? (d) Calculate the deadweight loss from this subsidy. (e) Will the government's subsidy meet its objective? Qs = -100 +4.Which of the following will cause the supply of a product to decrease? a) governent subsidy for the product b)an increase in consumer' income c) a decrease in the price of the product d)an increase in the excise tax on the product
- 1. Retail Promotion Programs Successful retail promotion programs have the capacity to generate additional producer surplus, but it depends en the size of the relative shifts in demand and supply. Please sketch out a supply and demand figure for RTE breakfast cereal sold in retail markets that adopt a promotion campaign; this program increases demand and also leads to an increase in advertising cests that is paid for by the retailer. Now assume (and label your figure) with the following: the initial equilibrium quantity was 100,000 boxes, the quantity with the promotion in place is 105,000 boxes, the initial price was $10 per box, the price with the promotion in place is S10.15 per box, and initial fixed costs were $2 per box. Would the promotion efforts be worthwhile to retailers if: a) b) c) The promotion was funded by a $0.20/box fee? A S0.50 fee/box? A S0.60 fee/box?17. Consider a perfectly elastic demand curve at p = 10, and a supply curve given by the following equation: p = 5 + 3q. Suppose that a tax of $3 per unit is imposed on producers. Which of the following statements is true? (A) Consumer Surplus is zero. (B) The tax burden is entirely on consumers. (C) Producer Surplus is zero. (D) Consumers pay $2 of the tax, while producers pay $1 of the tax.Q1. A market is characterized by the demand function is given by Qa= 1,080 – 3P and the supply function Qs= 6P – 360 respectively. (c) The government now establishes a $60 subsidy for buyers every time they purchase a unit of the good. How much tax-payer money will the government spend to support this policy? What is the size of the deadweight loss generated by the subsidy? (d) Firms can now export at an international price of $240 per unit. How many units are exported? How much are the gains from trade?
- 3. Consider a market where the supply and the demand are given by Q (P) = 100P and QP (P)=2000-100P. (a) Find the equilibrium price, quantity, consumer surplus, producer surplus, and the aggregate surplus. (b) Suppose the government wants to raise revenue by imposing tax of Y4 per unit. What is the price producers get, the price consumers pay, the equilibrium quantity, the tax revenue, and the dead weight loss? (c) Suppose the government is thinking about imposing an ad valorem tax instead of per unit tax. What does the tax rate has to be to keep the price consumers pay the same as in the per unit tax case? (d) Which tax scheme is better for the economy? Why?4. Suppose that the demand curve and supply functions are qp = 300–5p and qs = 100+20p, respectively. (a) On the same graph, draw the demand and supply curves with price on the vertical axis. (b) What is the quantity and price in the equilibrium? (c) Calculate consumer surplus and producer surplus. (d) Suppose the government implements a $5 dollar per unit sales tax. i. Calculate the new quantity and the price paid by the consumer. ii. Calculate the consumer surplus, producer surplus, tax revenue, and deadweight loss. iii. What share of the tax is passed on to the consumer and what share of the tax is passed on to the producer? iv. Graph the taxed equilibrium on a new graph. (e) Recalculate parts a through d but now suppose that quantity supplied is perfectly inelastic. Specifically, suppose that qs = 100. (f) Recalculate parts a through d but now suppose that quantity demanded is perfectly inelastic. Specifically, suppose that qp = 4002. Consider a competitive market for 'new build' homes. The demand and supply functions for this market are respectively given by: QD = 900 – 2p 1 Qs = -100 + P (a) Find the equilibrium Q and p in this market. Suppose the government wants to increase the number of individuals who own a house. They are planning to subsidise transactions in this market to increase Q by 50%. (b) What is the level of subsidy (x) which is required (c) What is the total cost of this subsidy? (d) What would be the change in consumer surplus from the subsidy? Is this larger than the change in producer surplus (e) Comment on whether the government's subsidy is likely to be successful.
- 5) Consider a market characterized by the following inverse demand and supply functions: Px = 10-2Qx and Px = 2 + 2Qx. Compute the surplus producers receive when an $8 per unit price floor is imposed on the market. (Show your work)19) Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, how many pounds of berries will be sold? A) 200 B) 300 C) 400 D) 600 E) 800 Answer: A Diff: 1 Section: 9.1 E) rise by $150, Answer: E Diff: 2 Section: 9.1 $4.00 $3.50 20) Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, consumer surplus will A) fall by $50. B) fall by $150. C) remain the same. D) rise by $50. B) fall by $300. C) remain the same. $3.00 $2.75 D) rise by $150. E) rise by $300. Answer: B Diff: 2 Section: 9.1. $2.50 $2.25 $2.00- $1.50 $1.00 $0.50 Figure 9.1.3 D 21) Refer to Figure 9.1.3 above. If the government establishes a price ceiling of $1.00, producer surplus will: A) fall by $150. 100 200 300 400 300 000 700 800 900 Q(berries-b.)Comsumer Surplus Study The goal of this assignment is to apply Calculus to analyze consumer and producer surplus. This activity is based off the economical principles discussed in Section 3.1 of "Principle of Economics" and Section 7 of Chapter 3 in the Business Calculus book. The table below shows how supply and demand of gasoliine vary depending on the price: Price ($/gal) Demand (million of gal.) Supply (million of gal.) 753 513 550 1.2 700 1.4 640 600 1.6 580 639 1.8 543 660 2.2 450 680 2.4 430 700 2.6 420 720 2.8 390 735 3. 367 763 Note: there is some randomization in the above data to account for price fluctuations. Make sure to check that you input the correct data in your device. Perform the following work • Assume that Supply has a quadratic relationship with the price. Find this relationship (the help buttons contain an article to compute trend-lines in Excel): S(p) = Round your answer to 3 decimal places %3D • Assume that the Demand has a quadratic relationship with the…