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e3prac - EXAM 3 PRACTICE 1 The equilibrium price of bananas...

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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) If the number of growers increased, so that each was producing at minimum average cost, what would be the new size of the deadweight loss?
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