Question

The demand for skateboards in Vermillion is Q = 500−2P and the supply curve is Q = 1/2 P. The government 2

decides to raise revenue by taxing consumers $25 for each skateboard purchased.

(a) Graph the supply and demand curves and calculate the consumer and producer surplus that would exist if there were no tax in the market.

(b) Show how the tax will change the market equilibrium price and quantity. Identify the price paid by consumers and the price received by producers, and use these to indicate the burden borne by each party due to the tax (total tax incidence for consumers/producers). Calculate the change in consumer and producer surplus from the tax.

(c) Using your diagram from part (a), calculate the deadweight loss from the tax. Intuitively, why is there deadweight loss from a tax and what does it represent?

Answer #1

Using the following information to calculate a)-n). Demand: P =
45- ½ Q Supply: P = 2Q
a) P*=_________
b) Q*=_________
c) Initial Consumer Surplus=__________
d) Initial Producer Surplus=__________
e) Total Surplus =_________________
Now the government imposes a $15 per unit tax on consumers.
Calculate the following.
f) Tax Distorted Competitive Equilibrium Quantity=_____
g) Price (consumers pay with tax)=________
h) Price (producers get with tax)=________
i) Consumer surplus with tax=_________
j) Producer surplus after tax=__________
k) Tax Revenue=_____________
l) Total...

Suppose the demand curve for a good is Q =9 −pand the supply
curve is Q =2p. The government imposes a specific tax of =1 per
unit. What would be the equilibrium? What effect does the tax have
on consumer surplus, producer surplus and deadweight loss?

Suppose that the demand equation: P = 6 – Q and supply equation:
P = Q.
a. Calculate the price elasticity of demand at
equilibrium.
b. Calculate the equilibrium price and quantity, and consumer
surplus and producer surplus.
c. Suppose government imposes a unit tax of $1 on producers. Derive
the new supply curve and also calculate the new equilibrium price
and quantity.
d. Calculate tax revenue and the deadweight loss of this tax.

4. Assume a demand of Q = 800 – 2P Assume this market is served
by a monopoly. MC = AC = $20. a. Calculate the consumer surplus. b.
Calculate the producer surplus. c. Calculate the deadweight
loss.

A.1. a. Suppose the demand function P = 10 - Q, and the supply
function is: P = Q, where P is price and Q is quantity. Calculate
the equilibrium price and quantity.
b. Suppose government imposes per unit tax of $2 on consumers.
The new demand function becomes: P = 8 – Q, while the supply
function remains: P = Q.
Calculate the new equilibrium price and quantity. c.
Based on (b), calculate the consumer surplus, producer surplus, tax...

Suppose that the demand curve for wheat is Q=100−10p and the
supply curve is Q=10p. The government imposes a price ceiling of
p=3
i) Describe how the equilibrium changes. ii) What effect does
this price ceiling have on consumer surplus, producer surplus, and
deadweight loss?

Suppose the demand for pickles on The Citadel is Qd=500-4P, and
the supply is Qs=6P. Assume this market is perfectly
competitive.
d. Suppose the Council puts a tax of $5 per unit on the purchase
of pickles. Write an equation showing the relationship between the
price paid by consumers and the price received by producers.
e. Find the new (after-tax) equilibrium quantity of pickles,
price paid by consumers, and price received by producers.
f. How much consumer surplus is created...

here are the demand and supply curves for a competetive market
Q=70 -P and Q= -20+2P
i. Calculate the equilibrium in the market.
ii. calculate the consumer supply, producer supply, and total
surplus in this competetive free market.
(For parts iii and iv) Now suppose the government intervenes
and wants to impose a price ceiling in this market.
iii. The government hires you to give advice. What do you
recommend the government set the price ceiling to be for it...

A ________ consumer surplus is measured by subtracting price
from the willingness to pay for a good. The market consumer surplus
is measured by an area under the ________ curve and above the price
up to the relevant quantity.
a. Market: Supply
b. Individual: Demand
c. Market: Demand
d. Individual: Supply
With a price ceiling, there is a transfer of surplus from
producers to _________ and there may be a potential ______ market
due to shortage in the market.
a....

The demand and supply for a good are respectively QD = 16 – 2P +
2I and QS = 2P – 4 with QD denoting the quantity demanded, QS the
quantity supplied, and P the price for the good. Suppose the
consumers’ income is I = 2. 6) Determine the price-elasticity of
demand if P = 2. 7) Determine the income-elasticity of demand if P
= 2. 8) Determine the price-elasticity of supply if P = 4. 9)
Determine consumers’...

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