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EXAM 3 PRACTICE
1.
The equilibrium price of bananas is $36 per crate and the equilibrium
quantity is 150 crates.
The government decides to impose a tax at a
rate of 50%.
That is, half of the price paid by banana buyers will go
to the government, so the banana growers get only the remaining half.
With this tax in effect, the price rises to $52 per crate and the quantity
sold falls to 110 crates.
a)
What is the demand equation?
b)
What is the supply equation?
c)
What is the deadweight loss of the tax?
d)
What is the tax revenue?
2.
The supply equation for avocadoes is
X
= 450
P
 3632,
and
the demand equation is
X
= 9938  140
P
.
The government
decides to subsidize avocado production so that growers will produce
and consumers will buy 7,698 crates of avocadoes.
a)
What is the total amount of subsidy paid by the government to
the avocado growers?
b)
What is the deadweight loss of the subsidy?
c)
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 Spring '08
 Ledyard
 Microeconomics

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