PS2 Answer Key

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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