Question

Suppose there is a market at its competitive equilibrium.

Demand p = 100 - QD

Supply p = 20 + (QS /3) The government introduces a subsidy of s = $4 per unit of the good sold and bought.

(a) Draw the graph for the demand and supply before subsidy.

(b) What is the equilibrium price and quantity before the subsidy and after the subsidy?

(c) Looking at the prices buyers pay and sellers receive after the subsidy compared to the no subsidy case, do buyers or sellers receive more of the subsidy? How much of the $4/unit subsidy is received by the buyers and how much by the sellers?

(d) Calculate the price elasticities of demand and supply at the equilibrium before the subsidy. Confirm that the elasticities are inversely proportional to the shares of the subsidy each side (buyers and sellers) receive?

(e) What is the consumer surplus CS and producer surplus PS before and after the subsidy? What is the cost to the government of this subsidy program? What is the DWL (deadweight loss) that comes with the subsidy policy?

Answer #1

Deadweight Loss] Suppose the market for corn in Banana Republic
is competitive. The domestic supply and demand function of corn is
Qs = 10P and Qd = 100 − 10P, respectively. Both of them measured in
billions of bushels per year.
(a) Calculate the equilibrium price and quantity,
consumer surplus (CS), and producer surplus (PS).
(b) Suppose the government offers a subsidy of $2 per
bushel to the firms. In equilibrium, the consumers are paying $4
per bushel and the...

The demand and supply for Fuji apples are given by
QD = 17,500 - 25 P and
QS = 10 P, where P is price
per pound and Q is pounds of apples. What is the consumer
surplus and producer surplus at the equilibrium?
A.
CS = $500,000; PS = $1,250,000
B.
CS = $750,000; PS = $1,250,000
C.
CS = $500,000; PS = $750,000
D.
CS = $1,250,000; PS = $500,000
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Let the market demand curve be QD=8-P
and the market supply curve be QS=P. Let
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be measured in singular units (i.e. simple count).
Solve for the equilibrium price P* and
quantity Q*.
Now, assume the government imposes a $2/unit tax on consumers,
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Pb and the sellers’ price
PS.
Rewrite the demand and supply curves using Pb
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Suppose the demand and supply curves for a large specialty
pizza are given by:
Qd = 120 – 10P
Qs = -30 + 5P.
Using the demand and supply functions above, the equilibrium
price of a pizza is ____, and the equilibrium quantity is ____.
Illustrate your answer.
Compute Price elasticity of demand and supply at this
equilibrium.
Compute CS and PS and illustrate on a graph.
Suppose that the government decrees that a specialty cannot be
sold above $8....

The demand and supply of pickles are given: QD = 300
– 500P and QS = 400P – 150. (20 points)
a) Suppose a subsidy of $0.25 per pickle is imposed. Calculate
the price paid by buyers (PB) and price received by
sellers (PS) after the subsidy and illustrate with a
graph.
b) Label the cost of this subsidy to the government on your
graph

Suppose that the (inverse) demand for Sugar in the US is given
by, P= 75-2 Qd
where P = price per bulk bag (in dollars) and Qd =
quantity demanded (in millions of bulk bags).
Suppose the (inverse) supply of sugar is given by, P= 3
Qs
where P = price per bulk bag (in dollars) and Qs =
quantity supplied (in millions of bulk bags).
a.) Find the equilibrium price and quantity of sugar exchanged
in the US market,...

You are given the following information about the demand for and
supply of widgets in the Republic of Xénïa. Answer the questions
that follow. If you draw diagrams, use a ruler, label the diagrams
completely, show demand choke price, demand intercept, supply choke
price, supply intercept, etc. Do not use double columns or put
rectangles or squares around your answers. Use “D” for demand and
“S” for supply. Do not use Qd or Qs to label your diagrams.
Although you...

Qd = 240 - 5P
Qs = P
(a) Where Qd is the quantity demanded, Qs is the quantity
supplied and P is the Price. Find:
(1) the Equilibrium Price before the tax
(2) the Equilibrium quantity before the tax
(3) buyers reservation price
(4) sellers reservation price
(5) consumer's surplus before tax
(6) producer's surplus before tax
(b) Suppose that the government decides to impose a tax of $12
per unit on seller's in the market.
Determine:
(1) Demand...

Suppose that a market has the following demand and supply
functions (normal): Qd = 10-P and Qs = 2P-2.
If the government imposed a $3/unit excise tax on producers in
this market, what would be the value of producer surplus?
If the government imposed a $3/unit excise tax on producers in
this market, what would be the value of consumer surplus?
If the government imposed a $3/unit excise tax on producers in
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If...

The demand and supply curves for Fuji apples are given by
QD = 50 – 6P and
QS = 4P – 2, where P is price
per bag and Q is in thousands of bags. What are consumer
surplus and producer surplus at the equilibrium price?
Answer Choices:
CS = $29,422; PS = $44,180
CS = $15,006; PS = $7,657
CS = $856,000; PS = $1,126,113
CS = $450; PS = $375

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