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# ps1 - Department of Economics University of California...

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Department of Economics Fall 2007 University of California, Berkeley Prof. Gilbert Problem Set 1 Due in class on Tuesday, September 25 th 1. Taxation. Let the market supply and demand for gasoline be given by Q S = 25 P - 45 and Q D = 105 - 5 P , respectively, where Q represents millions of gallons per day. (a) Graph the supply and demand curves and indicate the equilibrium price and quantity. Find the consumer and producer surplus. (b) The government tries to curb gasoline consumption by imposing a tax on consumers of 1.2 dollars per gallon of gasoline, collected at the pump. Find the equilibrium price and quantity. How much revenue does the government collect? What is the deadweight loss from the tax? (c) Now consider a tax on producers of 1.2 dollars per gallon of gasoline sold. Find the equilibrium price and quantity. How much revenue does the government collect? Compare your answers to those of part (b). 2. Monopoly pricing. A monopolist faces an inverse demand function P ( Q ) = 43 - 4 Q where P is measured in dollars per unit. It has a constant marginal cost of 3 dollars per

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ps1 - Department of Economics University of California...

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