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Skelton
Eco 3301
Homework 1
1.
If the demand curve for a good is given by the following equation:
Q = 1,000 – 200*P
And, the supply curve is given by:
300*P
Calculate equilibrium price and quantity.
A)
Suppose an excise tax of $0.50 is placed on the good.
What are the new equations for
supply and demand?
What is the new equilibrium price and quantity?
What is the new
posttax price from the supplier’s point of view?
Illustrate your answer with a supply and
demand diagram.
B) Repeat part A for a $0.50 sales tax instead of the excise tax.
C) Repeat part A, assuming an excise tax of $0.20 and a sales tax of $0.30.
D) Which tax structure (that of part A, B, or C) would you prefer?
Justify.
E)
For the supply and demand equations in part A, analyze what would in the market if a
price ceiling of $1.50 were imposed.
Would you prefer the free market solution or the
price controlled solution?
2.
Suppose the government wants to increase Social Security taxes by $1 per hour of work and
is undecided between increasing the tax on workers and increasing the tax on employers.
We
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This note was uploaded on 10/02/2008 for the course ECON 3301 taught by Professor Skelton during the Spring '08 term at SMU.
 Spring '08
 Skelton

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