Price Controls and Quotas: Meddling with Markets - End of Chapter Problems 1. In order to ingratiate himself with voters, the mayor of Gotham City decides to lower the price of taxi rides. Assume, for simplicity, that all taxi rides are the same distance and therefore cost the same. The accompanying table shows the demand and supply schedules for taxi rides. c. Suppose that the stock market crashes, and, as a result, people in Gotham City are poorer. This reduces the quantity of taxi rides demanded by 6 million rides per year at any given price. Illustrate this change in the market below, paying special attention to the scale on the quantity axis. Fare (S/ride) Quantity of rides (millions s per year) Fare Quantity Quantity (per ride) demanded supplied $7.00 10 12 6.50 11 11 6.00 12 10 5.50 13 9 5.00 14 8 4.50 15 7 What effect will the mayor's new policy have now? Market for taxi rides 7.0 6.5 60 5.5 5.0 D 4.5 2 4 6 8 12 10 14 13 16 18 20 22 It will force the market into equilibrium. It will have no effect. A surplus of 2 million rides per year A shortage of 2 million rides per year

Price Controls and Quotas: Meddling with Markets - End of Chapter Problems 1. In order to ingratiate himself with voters, the mayor of Gotham City decides to lower the price of taxi rides. Assume, for simplicity, that all taxi rides are the same distance and therefore cost the same. The accompanying table shows the demand and supply schedules for taxi rides. c. Suppose that the stock market crashes, and, as a result, people in Gotham City are poorer. This reduces the quantity of taxi rides demanded by 6 million rides per year at any given price. Illustrate this change in the market below, paying special attention to the scale on the quantity axis. Fare (S/ride) Quantity of rides (millions s per year) Fare Quantity Quantity (per ride) demanded supplied $7.00 10 12 6.50 11 11 6.00 12 10 5.50 13 9 5.00 14 8 4.50 15 7 What effect will the mayor's new policy have now? Market for taxi rides 7.0 6.5 60 5.5 5.0 D 4.5 2 4 6 8 12 10 14 13 16 18 20 22 It will force the market into equilibrium. It will have no effect. A surplus of 2 million rides per year A shortage of 2 million rides per year

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter6: Supply, Demand And Government Policies

Section: Chapter Questions

Problem 7PA

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($) Price Tax imposed on: Supply Demand 90 $90.00 Excise Tax (0- $20) 0,00 80 70 Demand 60 Perfectly Relabively Inelastic Elastic Relatively Elastic 50 $50.00 40 Supply Less Perfectly 30 Elastic Elastic Perfectly Elaste 20 10 CALCULATIONS 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 Quantity (thousands per week) Price Paid Quantity No Tax $50.00 4,000 With Tax $50.00 4,000
12. In an effort to reduce alcohol consumption, the government is considering a $1 tax on each gallon of liquor sold (the tax is levied on producers). Suppose that the supply curve for liquor is upward sloping and its equation is Q = 30,000P (where Q is the number of gallons of liquor and P is the price per gallon). The demand curve for liquor is Q = 500,000 – 20,000P. a. Draw a sketch to illustrate the excess burden of the tax. Next use algebra to calculate the excess burden. Show graphically the excess burden generated by the $1 unit tax. (Hint: Compare the losses of both consumer and producer surplus to tax revenues.) b. Suppose that each gallon of liquor consumed generates a negative external cost of $0.50. How does this affect the excess burden associated with the unit tax on liquor?
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