Suppose you have the following information about production levels of Ibs. of caviar and bottles of wine, and the market-clearing prices for each of the nine allocations: 5. Allocation Caviar Wine Pricecaviar Pricewine GDP $50,000 50,000 50,000 50,000 50,000 50,000 $350.00 $166.67 187.50 90 100 175.00 200 300 80 214.29 250.00 300.00 70 116.67 60 400 87.50 50 500 70.00 F 40 600 375.00 58.33 ABCDE

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Suppose you have the following information about production levels of
Ibs. of caviar and bottles of wine, and the market-clearing prices for each
of the nine allocations:
5.
Caviar
Wine
Pricecaviar
Pricewine
GDP
Allocation
$50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
$166.67
187.50
$350.00
175.00
A
90
100
B
80
200
214.29
250.00
300.00
116.67
87.50
70
300
60
400
E
50
500
70.00
375.00
500.00
58.33
50.00
F
40
600
G
30
700
H
20
800
750.00
43.75
I
10
900
1500.00
38.89
A. How much wine must be sacrificed to produce 1 more lb. of caviar?
B. Is allocation point A efficient? (As in class, prove your conclusion with math)
C. Which allocation point is efficient? (As in class, prove your conclusion with
math)
D. Suppose government assesses a tax of $40 per bottle of wine, but no tax on caviar.
i)
what will be the new equilibrium? Why?
ii)
how much of the tax is forward shifted? Explain
iii)
how much of the tax is backward shifted? Explain
Transcribed Image Text:Suppose you have the following information about production levels of Ibs. of caviar and bottles of wine, and the market-clearing prices for each of the nine allocations: 5. Caviar Wine Pricecaviar Pricewine GDP Allocation $50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 $166.67 187.50 $350.00 175.00 A 90 100 B 80 200 214.29 250.00 300.00 116.67 87.50 70 300 60 400 E 50 500 70.00 375.00 500.00 58.33 50.00 F 40 600 G 30 700 H 20 800 750.00 43.75 I 10 900 1500.00 38.89 A. How much wine must be sacrificed to produce 1 more lb. of caviar? B. Is allocation point A efficient? (As in class, prove your conclusion with math) C. Which allocation point is efficient? (As in class, prove your conclusion with math) D. Suppose government assesses a tax of $40 per bottle of wine, but no tax on caviar. i) what will be the new equilibrium? Why? ii) how much of the tax is forward shifted? Explain iii) how much of the tax is backward shifted? Explain
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