econ_101_ps3_sp08 - Economics 101 Prof.Schuler Spring 2008...

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Economics 101 Prof.Schuler Spring 2008 Problem Set 3 Due date : Monday,March 10,2008 in lecture Q.1 A recent hot issue in the United States is energy. Suppose the demand for energy is described by Q=50-0.5P and the supply of energy by Q=P-10. a. Graph the supply and demand curves carefully. Determine the equilibrium price and quantity of energy. b. Some lawmakers decide that the problem with America is that the price of energy is too high. They propose a bill that would set a price limit of $30 per unit of energy. If enacted, what will be the effect of this law on the quantity of energy supplied and demanded? Is the market in equilibrium? Explain. If not, calculate the shortage/surplus that results. c. Other lawmakers decide that energy prices are too low and are considering a tax on energy to encourage conservation. What will be the effect on equilibrium price and quantity of per unit tax on energy, if the tax is collected from suppliers? Show this on a supply and demand diagram. d. Using the results from part (c) show the economic price incidence for suppliers and demanders of energy due to that tax. Who pays more and why? e. As an alternative to the price limit proposed in (b), some lawmakers suggest that consumers of energy be given a subsidy per unit of energy consumed (for simplicity, you can think of this as a cash rebate given to consumers per unit of energy consumed). Show this on a supply and demand diagram. Q.2 Use the information in the table to answer the questions below. Month Income per month Demand for beef per month Demand for pork per month 1 $400 5 pounds 3 pounds 2 $800 3 pounds 5 pounds 3 $800 5 pounds 3 pounds a. Between Months 1 and 2, what is the income elasticity of demand for beef and what kind of good is it?
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b. Between Months 1 and 2, what is the income elasticity of demand for pork and what kind of good is it?
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econ_101_ps3_sp08 - Economics 101 Prof.Schuler Spring 2008...

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