11.) In the market for cars, the price elasticity of supply is +1.5, and the price elasticity of demand is -0.8. The equilibrium price is $ 30 thousand, and quantity is 120 million. (a) Assuming supply and demand are linear, reconstruct and draw the supply and demand curves. Label the intercepts. (b) To reduce traffic, the government imposes a $400 tax on cars. What are PB and PS after the tax? What is the new equilibrium quantity? Illustrate them on the same graph. (c) How big is the change in consumer surplus, producer surplus, government revenue, and deadweight loss?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

11.) In the market for cars, the price elasticity of supply is +1.5, and the price elasticity of
demand is -0.8. The equilibrium price is $ 30 thousand, and quantity is 120 million.
(a) Assuming supply and demand are linear, reconstruct and draw the supply and demand
curves. Label the intercepts.
(b) To reduce traffic, the government imposes a $400 tax on cars. What are PB and PS after the
tax? What is the new equilibrium quantity? Illustrate them on the same graph.
(c) How big is the change in consumer surplus, producer surplus, government revenue, and
deadweight loss?

Expert Solution
steps

Step by step

Solved in 5 steps with 13 images

Blurred answer
Knowledge Booster
Demand and Supply Curves
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education