Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 10, Problem 6P
(a)
To determine
The table depicting the
(b)
To determine
(c)
To determine
Deadweight loss when supply is perfectly inelastic.
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Students have asked these similar questions
The table shows the quantities of beer supplied and demanded (in millions of six
packs) at different prices ($ per six pack) in an unregulated market with no tax.
Suppose a tax of $5 per six pack is collected from sellers of beer. Assume that the
demand curve and the supply curve are straight lines.
Quantity
supplied
Quantity
demanded
Price
$4
28
$8
24
24
$12
40
20
With the tax in effect:
The equilibrium price of beer is $
per pack (enter a whole
number, example: 10)
The equilibrium quantity of beer is
million packs (enter a whole
number, example: 10)
The buyers' share of the tax is $
A per pack (enter a whole number,
example: 10)
The sellers' share of the tax is $
per pack (enter a whole number.
example: 10)
Using the following diagram (the equilibrium quantity is 5.5, the supply curve intersects the price axis at 3.5), answer these questions: a) If a tax of $2 were imposed, what price would buyers pay, and what price would suppliers receive? How much revenue would be raised by the tax? Compute the total consumer surplus, producer surplus, and welfare after the introduction of the tax.
b) If a subsidy of $5 were imposed, what price would buyers pay, and what price would suppliers receive? How much would the subsidy cost the government? What would be the consumer surplus and the producer surplus?
c) If the government imposed a binding price floor of $7 and compensated the producers by buying the excess surplus at the stated price: What would be the consumer surplus, the producer surplus, the government expenditures, and total welfare?
Consider the market for mountain bikes. The following graph shows the demand and supply for mountain bikes before the government imposes any taxes.
First, use the black point (plus symbol) to indicate the equilibrium price and quantity of mountain bikes in the absence of a tax. Then use the green point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond symbol) to shade the area representing total producer surplus (PS) at the equilibrium price.
(screen shot 1)
Suppose the government imposes an excise tax on mountain bikes. The black line on the following graph shows the tax wedge created by a tax of $80 per bike.
First, use the tan quadrilateral (dash symbols) to shade the area representing tax revenue. Next, use the green point (triangle symbol) to shade the area representing total consumer surplus after the tax. Then, use the purple point (diamond symbol) to shade the area…
Chapter 10 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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