FIU ECO2023 Assignment HW05 - Chapter 07 spring 14

1.

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Question and Exercise 7-1

Why isn’t the combination of consumer and producer surplus maximized if there is either excess demand or supply?

2.

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Question and Exercise 7-2

Why does nearly every purchase you make provide you with consumer surplus?

3.

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Question and Exercise 7-3

How is elasticity related to the revenue from a sales tax?

.

4.

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Question and Exercise 7-5

Demonstrate the welfare loss of:

a. A restriction on output when supply is perfectly elastic. Graph the welfare loss of a quantity restriction equal to a maximum of Q = 6.

Instructions: Use the 3-point tool 'Loss' to identify the welfare loss. Click and drag each of the endpoints of the shaded area until the triangle highlights the desired region.

b. A tax t placed on suppliers (t = $4).

Instructions: Use the 3-point tool 'Loss' to identify the welfare loss. Click and drag each of the endpoints of the shaded area until the triangle highlights the desired region.

Part c not included in this question.

d. A restriction on output when demand is perfectly elastic. Graph the welfare loss of a quantity restriction equal to a maximum of Q = 4.

Instructions: Use the 3-point tool 'Loss' to identify the welfare loss. Click and drag each of the endpoints of the shaded area until the triangle highlights the desired region.

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Question and Exercise 7-6

Use the graph below that shows the effect of a $4 per-unit tax on suppliers to answer the following questions:

a. Before the tax, equilibrium price is $ and equilibrium quantity is .

After the tax, equilibrium price is $ and equilibrium quantity is .

b. Before the tax when the market is in equilibrium, producer surplus is .

After the tax, producer surplus is .

c. Before the tax when the market is in equilibrium, consumer surplus is .

After the tax, consumer surplus is .

d. The total tax revenue collected after the tax is implemented is $.

6.

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Question and Exercise 7-9

Suppose demand for cigarettes is inelastic and the supply of cigarettes is elastic. Who would bear the larger share of the burden of a tax placed on cigarettes?

7.

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Question and Exercise 7-10

If the demand for a good is perfectly elastic and the supply is elastic, who will bear the larger share of the burden of a tax on the good where the tax is paid by consumers?

8.

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Question and Exercise 7-11

What percentage of a tax will the demander pay if price elasticity of supply is 0.3 and price elasticity of demand is 0.7? What percentage will the supplier pay?

Instructions: Round your answers to the nearest whole number.

Percent paid by demander: %.

Percent paid by supplier: %.



Explanation:

The demander will pay 30 percent of the tax [0.3/(0.7 + 0.3) × 100], and the supplier will pay the remaining 70 percent.

9.

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Question and Exercise 7-11 (algo)

What percentage of a tax will the demander pay if price elasticity of supply is 3 and price elasticity of demand is 2? What percentage will the supplier pay?

Instructions: Round your answers to the nearest whole number.

Percent paid by demander: %.

Percent paid by supplier: %.



Explanation:

The demander will pay 60 percent of the tax [3/(3 + 2) × 100], and the supplier will pay the remaining 40 percent [2/(3 + 2) × 100].

10.

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Question and Exercise 7-14

Calculate the percentage of the tax borne by the demander and supplier in each of the following cases:

Instructions: Round your answers to the nearest whole number.

	Elasticity of demand	Elasticity of supply	Percent borne by demander	Percent borne by supplier
a.	ED = 0.3	ES = 1.2	%	%
b.	ED = 3	ES = 2	%	%
c.	ED = 0.5	ES = 1	%	%
d.	ED = 0.5	ES = 0.5	%	%

e. Summarize your findings regarding relative elasticity and tax burden.

Whichever group (producers or consumers) has the lower elasticity bears the greater portion of the tax burden.

Explanation:

The demander will pay the percent of the tax equal to [E_S/(E_S + E_D) × 100], and the supplier will pay the remaining percent of the tax equal to [E_D/(E_S + E_D) × 100].

a. Percent borne by demander = 80; percent borne by supplier = 20.

b. Percent borne by demander = 40; percent borne by supplier = 60.

c. Percent borne by demander = 67; percent borne by supplier = 33.

d. Percent borne by demander = 50; percent borne by supplier = 50.

e. Consumers with relatively more elastic demand curves bear a smaller percent of the tax. The same is true for producers.

b.

c.

d.

11.

award:
10 out of
10.00 points

Question and Exercise 7-14 (algo)

Calculate the percentage of the tax borne by the demander and supplier in each of the following cases:

Instructions: Round your answers to the nearest whole number.

	Elasticity of demand	Elasticity of supply	Percent borne by demander	Percent borne by supplier
a.	ED = 1.2	ES = 0.3	%	%
b.	ED = 0.3	ES = 0.6	%	%
c.	ED = 1	ES = 0.5	%	%
d.	ED = 0.4	ES = 1.3	%	%

e. Summarize your findings regarding relative elasticity and tax burden.

Whichever group (producers or consumers) has the lower elasticity bears the greater portion of the tax burden.

12.

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Question and Exercise 7-16

Demonstrate how a price floor is like a tax on consumers and a subsidy to suppliers.

Instructions: On the following graph, use the tool 'Tax_C' to show the area of the tax paid by consumers. Then use the tool 'DWL' to show the deadweight loss caused by this tax.

Instructions: On the following graph, use the tool 'Transfer_C' to show the area of surplus transferred to suppliers. Then use the tool 'DWL' to show the deadweight loss caused by this price floor.

a. Who gets the revenue in the case of a tax?



b. Who gets the revenue in the case of a price floor?

.

13.

award:
10 out of
10.00 points

Question and Exercise 7-18

Use the graph below to answer the following questions:

a. Equilibrium price is $ and equilibrium quantity is .

b. When the market is in equilibrium, producer surplus is .

c. When the market is in equilibrium, consumer surplus is

d. If price were held at $12 a unit, producer surplus would be and consumer surplus would be .

14.

award:
5 out of
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Question and Exercise 7-21

The general rule of political economy is:


Give an example from the real world.