Unformatted text preview: YORK UNIVERSITY — ECON2350 — V. BARDIS
P A TI E ET 2 1. Using the concepts of consumer and producer surplus argue that the equilibrium in a perfectly competitive market is efﬁcient. 2. Provide a set of assumptions that describes a perfectly competitive market and state the short— run and long—run equilibrium conditions. 3. The short—run cost function of the representative ﬁrm in a competitive industry is given by
SRO (q, K ) = 1/K + K (12 where K denotes a ﬁxed input and q is the level of output produced
by the ﬁrm. Industry demand is given by Q22,200—23p. Find the equilibrium price and quantity
in this market in the long—run. 4. Consider the case of a perfectly competitive industry with n identical ﬁrms. Each firm’s total
cost function is given by C(q) = 100 + 10g + q2
The demand for the good is given by Qd = 400 — 4p (a) Find the equilibrium in the short run if the number of firms is 10. (b) Calculate consumer and producer surplus in the short—run equilibrium. What is the total surplus in the market?
(c) Is the allocation you found in part (a) a long—run equilibrium?
(d) Find the long—run equilibrium in the market. (e) Calculate total surplus in the long run. 5. Consider a market where supply is given by Y(p) = 4001) and there are 800 identical consumers,
each with demand function {L‘i = 6 — p where 1) denotes the good’s price.
(a) Find the aggregate demand for the good.
(b) Determine the equilibrium price and quantity.
(0) Calculate consumer and producer surplus and total surplus. 6. Suppose that a per—unit tax of $3 (t = 3) is applied in the market described in question 5.
(a) Determine the new equilibrium price and quantity.
(b) Calculate consumer and producer surplus and compare the values to those you found in
question 5. Are both consumers and producers worse off?
(0) What is the value of the eﬁiciency loss (or dead—weight loss) due to the tax?
(d) Who ends up paying the tax, consumers, producers or both? 7. In the case of a ‘constant—cost’ perfectly competitive industry show that consumers end up paying the full amount of a per—unit tax imposed on output. 8. Using a well—deﬁned diagram, show the effect on output and price of a per—unit subsidy. Carry
out the welfare analysis of the subsidy by refering to areas on your graph. 9. Using a well—deﬁned diagram, show the effect on output and price of a binding price ceiling. Carry out the welfare analysis of the price ceiling by refering to areas on your graph. 0 Questions From Textbook Chapter 16: All Chapter 23: 2
(For answers, please see the textbook.) ...
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 Summer '08
 Bardis

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