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Unformatted text preview: where demand is inelastic. The supply is the same for both markets, and the pre-tax equilibrium quantities and prices are the same in both markets. Which market will produce more government revenue, the one with elastic demand or inelastic demand? Question 2 (12 points) Consider the perfectly competitive market for tulips in Pizzaland. The government of Pizzaland is trying to decide whether or not to open the tulip market to trade. a. (7 points) In a clearly labeled diagram, show the effects on the market for tulips in Pizzaland if the world price is higher than the no trade price. Label prices, quantities, consumer surplus, producer surplus, government revenue after free trade. b. (3 points) Who benefits and who loses from free trade in the market for tulips? c. (2 points) Who has comparative advantage in tulips, Pizzaland or the rest of the world?...
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- Spring '08