HW_ch6 - (c Calculate the amount of lost consumer surplus...

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Homework Question for Chapter 6 1. Given the the demand curve for cigarettes is Q D = 1500 - 6P and the supply curve is Q S = -100 + 2P and government has decided it would like to reduce the total amount of cigarette sales. Answer the following questions. (a) Graph the supply and demand curves in the absence of taxes, calculate and demonstrate the equilibrium levels of price and output. (b) Impose a tax of $24 on either supply or demand. Graph the new supply or demand curve that occurs in the presence of the tax. Calculate the new price received by firms, price paid by consumers and the equilibrium quantity of output in the presence of the tax. Demonstrate each of these points on graph.
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Unformatted text preview: (c) Calculate the amount of lost consumer surplus, lost producer surplus. Calculate the amount of the dead-weight loss. (d) What would be the quantity sold if instead of a tax the government imposed a price floor of $206? Does this minimum price actually reduce the amount of cigarettes sold on the market? What is the lowest minimum price government could impose that would impact the market? (e) Calculate the amount of lost consumer surplus, change to the producer surplus. Calculate the amount of the dead-weight loss. (f) You’re an advisor for the Governor. What policy instrument would you recom-mend she use to reduce smoking? (Taxes or minimum price) Why?...
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This note was uploaded on 10/14/2010 for the course DDF 1124-445 taught by Professor Gorthermclays during the Spring '10 term at Florida College.

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