ECON 101: Principles of Microeconomics – Discussion Section Week 5
TA: Kanit Kuevibulvanich
1
This week, you will learn

Demand and Supply: Market Interventions
o
Excise Taxes
o
Quantity Quota
o
Agricultural Markets (Price Floor/Support vs. Price Guarantee/Subsidy)
Exercises
Question 1 (Excise Taxes) The demand and supply for soft drinks are given by Q = 20 – P and Q= 3P, respectively. 1.Solve for the equilibrium price and quantity. Suppose now the government imposes a perunit tax of $4 on the sellers. 2.Solve for the new quantity, net price sellers received, and price consumers paid. 3.Calculate the government revenue from the taxation. 4.Calculate the deadweight loss resulting from the taxation. Point out what portion of the deadweight loss used to belong to each party. 5.What fraction of the economic incidence of the tax is borne by consumers? 6.Answer verbally, what would happen to your analysis in Part 2–5 if instead of imposing tax on the sellers, the government divides the legal burden of $1.11 per unit to consumers and $2.89 per unit to producers. Question 2 (Quantity Quota) Consider the market for statisticians. The demand and supply for statistician is given by P = 200 – Q/10 and P = 20 + Q/20, where P is hourly wage and Qis statisticians employed. 1.Find the equilibrium wage (price) and statisticians employed (quantity).