# 403ps1 - tax and an excise tax have equivalent effects on...

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1 Problem Set 1 4. ( 4 pts. ) False. When demand decreases, the equilibrium price falls, and this causes no other shifts in supply or demand. Remember, a change in price cannot cause a shift in the demand curve, but a shift in the demand curve can cause a change in the equilibrium price.

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2 8. ( 4 pts. ) No, this observation is consistent with the laws of supply and demand. The supply curve decreases (i.e., shifts left), which causes the equilibrium price to rise and the equilibrium quantity (i.e., home sales) to fall.
3 11. ( 4 pts. ) You can answer this question in one of two ways. The first and more tedious way involves plotting the data in the table and then observing that the demand and supply curves intersect at P = \$2 and Q = 7. The second and more direct way is to look at the table and observe that there is only one row in which quantity demanded equals quantity supplied. This row is P = \$2.

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4 22. ( 4 pts. ) The effect would also cause the price of apples to rise to \$0.23 apiece. A sales
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Unformatted text preview: tax and an excise tax have equivalent effects on the equilibrium price. 5 27. ( 6 pts. ) a.) As stated in the question, the equilibrium quantity increases from 200 to 230 units. Moreover, it is important to recognize that the supply curve has shifted horizontally by 50 units. b.) The equilibrium quantity decreases from 200 to 180 units. Again, it is important to recognize that the demand curve has shifted horizontally by 50 units. c.) Why has the equilibrium quantity decreased from 200 to 180? In the Tuesday graph, the horizontal distance between the supply curves is 50 units. In the Wednesday graph, the horizontal distance between the demand curves is also 50 units. Since we know that the equilibrium quantity increases from 200 to 230 units in the Tuesday graph, this means that the equilibrium quantity decreases from 200 to 180 units in the Wednesday graph....
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## This note was uploaded on 02/04/2009 for the course ECON 403 taught by Professor Alexander during the Spring '09 term at Western Michigan.

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403ps1 - tax and an excise tax have equivalent effects on...

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