eco200_problemset3_2009 - UNIVERSITY OF TORONTO Faculty of...

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UNIVERSITY OF TORONTO Faculty of Arts and Science December 2009 PROBLEM SET 3 1 ECO200 - Section L0101 Carlos J. Serrano The contents of this problem set are copyrighted by the University of Toronto. The sale, license, and bundling of the contents of the test will be prosecuted by the legal services of the University of Toronto. Please report unauthorized use to carlos.serrano@utoronto.ca. **************************************************************************** Collaboration on problem sets is strongly encouraged, but copying the answers from someone else is not allowed and will be considered plagiarism. **************************************************************************** Question 1: [Perfectly Competitive Equilibrium and Taxation] (25 points) Suppose the market for meat in Minnesota is perfectly competitive. The demand and supply of meat are the following ( ) = 400 ( )= (a) What is the equilibrium in the market for meat? Consider that the government of Minnesota introduces a tax to producers of $2 per unit of output. (b) What is the new equilibrium? Congressman Kennedy, from a farm district in Minnesota, proposes that consumers instead of producers should be paying the $2 tax. Assume that consumers are more f exible than producers (i.e., "the demand is more elastic than the supply"). The congressman argues that the DWL would be smaller because the demand is more elastic than the supply. (c) Explain in one line whether the congressman is right or not? (No partial credit will be
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eco200_problemset3_2009 - UNIVERSITY OF TORONTO Faculty of...

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