E130PS1 - Professor Valerie Ramey Econ 130 Fall 2007...

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P r o f e s s o r V a l e r i e R a m e y Econ 130, Fall 2007 Problem Set #1 1. (Calculating the effects of taxes) Suppose the inverse demand curve for a particular good is P D = 33 – Q and the inverse supply curve is given by P S = 3 + 2 Q. A. Find the equilibrium price and quantity. B. Find the consumer surplus, producer surplus, and the social surplus. C. Suppose the government imposes a tax of $3 per unit exchanged. Calculate the price paid by demanders, the price received by suppliers, the equilibrium quantity, the producer surplus, the consumer surplus, government revenue and deadweight loss. 2. (Subsidies for drugs for seniors ) The government recently instituted a program that subsidizes drugs for senior citizens. Using supply and demand graphs, analyze the effect of this subsidy on (i) the total quantity of drugs purchased; (ii) the price paid by seniors; (iii) the price paid by other consumers; and (iv) the price received by drug companies.
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E130PS1 - Professor Valerie Ramey Econ 130 Fall 2007...

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