Price Theory HW1 answers

# Price Theory HW1 answers - Skelton Eco 3301 Homework 1...

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Skelton Eco 3301 Homework 1 Answers 1. Initial price = \$2, quantity = 600 A) Supply: 300P – 150; Demand: 1,000 – 200P; P = \$2.30, posttax P = \$1.80; Q = 540 B) Supply: 300P; Demand: 900 – 200P; P = \$1.80; Q = 540 C) Supply: 300P – 60; Demand: 940 – 200P; P = \$2; posttax P = \$1.80; Q = 540 D) Economically speaking, it makes no difference. You could make some type of efficiency argument based on ease of tax collection (and probably should). E) P = \$1.50; Qs = 450; Qd = 700; shortage of 250 (you can graph this, if you like) 2. A) It means everyone will have the exact same amount of take home pay regardless of which plan is chosen. Also, employers will have the exact same labor costs under either plan. For example, if a tax on workers causes wages to rise to \$6 per hour, then a tax on employers will cause wages to fall to \$5 per hour. Either way, workers receive after tax pay of \$5 per hour and employers pay \$6 per hour in labor costs. B) You should draw demand and supply curves for labor. A tax on workers causes the supply curve to shift leftwards (i.e. decrease) by \$1, while a tax on employers would

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Price Theory HW1 answers - Skelton Eco 3301 Homework 1...

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