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?
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?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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11.) In the market for cars, the price elasticity of supply is +1.5, and the price elasticity of
(a) Assuming
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
(c) How big is the change in
deadweight loss?
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