# PS2 Answer Key - willing to sell e The revenue the...

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Problem Set 2 Answer Key-Chapter 4 and Chapter 5 1. a. Increase in supply. b. Change in quantity supplied. c. Decrease in supply. d. Increase in supply. 2. 0 100 200 300 400 500 600 700 800 900 100 \$0.00 \$5,000.00 \$10,000.00 \$15,000.00 \$20,000.00 \$25,000.00 \$30,000.00 \$35,000.00 \$40,000.00 \$45,000.00 \$50,000.00 Quantity thousands of cars Price per car Supply Demand A Supply + tariff B C D a. Equilibrium price is \$25,000 per car. Equilibrium quantity is 600,000 cars. b. See the graph above. c. Equilibrium quantity drops to 500,000. The price paid by consumers rises to \$30,000. The price received by producers falls to \$22,500. d. Equilibrium price rises by less than the tariff because at \$32,500, consumers demand fewer cars than suppliers would like to sell. Suppliers must reduce the price until consumers are willing to purchase as many cars and they are
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Unformatted text preview: willing to sell. e. The revenue the government collects is shown by area D. It is equal to 500,000 X \$7,500, or \$3.75 billion. f. Sales revenue after the tariff is 500,000 X \$22,500, or \$11.25 billion. Before the tariff sales revenue was \$15 billion. Revenue has fallen \$3.75 billion. g. A quota of 500,000 cars would have the same effect. h. Government would collect no revenue with a quota. Sales revenue would remain unchanged at \$15 billion. 3. a. Q=300,000; P=400. b. Qs=200,000 + 250*300=275,000; Qd=400,000 - 250 *300=325,000 shortage=Qd-Qs=50,000 c. Qs = 200,000 + 250(P-200)=150,000+250P Qd= 400,000 - 250 P The new equilibrium quantity and price are Q=275,000 and P=500...
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