ECO 100B
Problem Set 4
1. (a) At the equilibrium,
1000
10
P
=
10 + 200
P
P
=
990
210
=
33
7
Q
=
6670
7
(b) With the $1 tax, marginal costs increase by $1 and hence, so does the supply curve. Let
Q
S
=
10 + 200
P
P
=
Q
S
10
200
With the $1 tax, from the consumer±s perspective, the supply curve shifts up by $1. So:
P
=
Q
S
10
200
+ 1
=
Q
S
+ 190
200
Q
S
=
200
P
190
At the equilibrium,
Q
D
=
Q
S
so:
200
P
190
=
1000
10
P
P
=
17
3
Q
=
2830
3
(c) The consumer±s price goes up from
33
7
to
17
3
which is an increase of $
20
21
.
The price
received by producers goes down from
33
7
to
17
3
1
±
which is a decrease of
1
21
.
The
consumer±s share is
20
21
and the producer±s share is
1
21
.
(d) The Long Run Supply curve is horizontal at
P
=
33
7
.
(e) The $1 per unit tax will shift the entire AC curve up by $1, as well as its minimum point
1
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View Full Document(where MC = AC). So the new Longrun supply curve will be
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 Spring '07
 RAUCH
 Supply And Demand, Harshad number, producer

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