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ps6 - UNIVERSITY OF WISCONSIN Economics 101 Fall 2005 Wei...

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UNIVERSITY OF WISCONSIN Economics 101 – Fall 2005 Wei Zhang Problem Set 6 Due By October 24, 2005 (in class) The Impact of a Price Ceiling 1) Demand for leaf blowers in Madison is given by the equation Q D =90-P, while supply is given by Q S =2P. a. What are the equilibrium price and quantity? b. The city of Madison, in order to encourage a citywide cleanup, imposes a price ceiling of \$10/blower. Is there a shortage or surplus? How big? c. The city decides that leaf blowers make too much noise and decides to drop the price ceiling and instead impose an excise tax of \$30/blower. Show the consumer surplus, producer surplus, and deadweight loss in a diagram. Calculate the deadweight loss. The Impact of an Excise Tax 2) Suppose market demand for movie tickets (in millions per year) is given by the equation Q D =10-P, while tickets are supplied according to the market supply equation Q S =P-2. a. Solve for the equilibrium price and quantity. Graph your results. b. Suppose the government imposes an excise tax on movie tickets of \$2 each. Graph the changes in

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