ECON 310 – Fall 2006. Chapter 10 – “Competitive Markets: Applications.” “Review Questions” (page 399): 1, 2, and 7. “Problems” (pages 399-401): 10.2, 10.4, 10.5, 10.9, 10.10, and 10.13. Additional Questions: 1) Consider a market in which ppD83400)(−= and ppS81)(=. Determine the efficient level of trade in this market. Determine the maximum possible value of “Total Social Welfare.” 2) Consider a market in which ppD 5100)(−= and ppS 15)(=. Determine the value of “Deadweight Loss”: a. if 25 units are traded, b. if 75 units are traded, and finally c. if 100 units are traded. 3) Consider a market with linear Demand and linear Supply as illustrated below. a. What impact would imposing a price floor of 50.22=fp have on this market? Explain. What impact would imposing a price ceiling of 50.22=cp have on this market? Explain. b. What impact would imposing a price floor of 75.17=fp have on this market? Explain. What impact would imposing a price ceiling of 75.17=cp have on this market? Explain. $ q Demand Supply 51,490 25,250 0 0 20 7 364) Consider a market with Demand and Supply as illustrated below. a. Suppose a per unit tax of 15=T is imposed on the sellers in this market. How much revenue would this tax generate (if it is not possible to determine the exact value of tax revenue, explain why it is not possible to do so and place an upper and lower bound on the value of the resulting tax revenue)? Graphically illustrate the tax revenue, change in Consumer’s Surplus, change in Producer’s Surplus, and Deadweight Loss with this tax in place. Redo this question, supposing that this tax is instead imposed on the buyers in this market. c. Suppose a per unit tax of 50.22=T is imposed on the sellers in this market. How much revenue would this tax generate (if it is not possible to determine the exact value of tax revenue, explain why it is not possible to do so and place an upper and lower bound on the value of the resulting tax revenue)? Graphically illustrate the tax revenue, change in Consumer’s Surplus, change in Producer’s Surplus, and Deadweight Loss with this tax in place. Redo this question, supposing that this tax is instead imposed on the buyers in this market. e. Based upon your answers above, is it better to place the tax on sellers or on buyers? Explain. 5) Consider a market in which Demand is given by the inverse function qqPD250)( = and Supply is given by the inverse function qqPS101)( = . a. With no tax in this market, how many units will be traded? Explain. b. Suppose a per unit tax of 24=T is imposed in this market. Explain why only 10=Tq units will be traded. c. Suppose a per unit tax of T is imposed in this market. What value of T would result in exactly 40=Tq units being traded? Explain. $ q Demand Supply 36,000 18,000 12,000 0 0 40 50 17.50 62.506) Consider a market in which Demand is given by the inverse function qqPD3400)( −= and Supply is given by the inverse function qqPS=)(. Suppose a per unit tax of T (with 0>T but 400≤T ) is imposed on the sellers in this market. a. Graphically illustrate the market outcome in the presence of this tax. Be sure to identify the tax revenue, change in Consumer’s Surplus, change in Producer’s Surplus, and Deadweight Loss with this tax in place. b. Suppose 50=T . Determine numerical values of: the level of trade with the tax in place, the total price per unit paid by buyers, the total price per unit received by sellers, the amount of tax revenue generated, the change in Consumers’ Surplus, the change in Producers’ Surplus, and the resulting Deadweight Loss. c. In addition to 50=T , also consider 10=T , 200=T , 250=T , and 400=T . Which of these values of T generates the greatest amount of tax revenue?
View Full Document
Unlocking...