ReviewI_1 - the price buyers pay and the price sellers...

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Lesson I.1 Managerial Economics BA 445 Review Questions 1 Lesson Topics Market Demand Curves show the amount a good that will be bought at alternative prices, holding other factors constant. Grocery prices are outside each buyer’s control when enough buyers compete to buy. Market Supply Curves show the amount a good that will be sold at alternative prices, holding other factors constant. Mall prices are outside each seller’s control when enough sellers compete to sell. Competitive Markets require enough competing buyers and competing sellers so prices are outside of everyone’s control. At the other extreme, one buyer and one seller negotiate price. Competitive Market Equilibrium is t he price that equates supply and demand. At any lower price, shortage raises the price; and at any higher price, surplus lowers the price. Tax Equilibrium (1) is t he price that equates supply and demand after the government taxes trade. That tax reduces trade, and drive a wedge between
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Unformatted text preview: the price buyers pay and the price sellers receive. Lesson I.1 Managerial Economics BA 445 Review Questions 2 Tax Equilibrium Question. Nike is concerned because Congress has proposed an excise tax of $1 on each pair of tennis shoes sold in the United States. They are lobbying against the tax through an advertising campaign that asserts the tax will raise the price of tennis shoes by $1. Use supply and demand graphs to scrutinize that assertion, and show how much of the tax will actually be passed on to consumers. Lesson I.1 Managerial Economics BA 445 Review Questions 3 Answer to Question: Suppose shoe producers are responsible for paying the tax to the government. Then the $1 tax shifts the market supply curve upward by $1 for each quantity of shoes. This results in an increase in price from P1 to P2 and a decrease in quantity from Q1 to Q2. Notice that the price goes up by less than the $1 tax....
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This note was uploaded on 04/22/2011 for the course ECON 101 taught by Professor Asdg during the Spring '11 term at Yaşar Üniversitesi.

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ReviewI_1 - the price buyers pay and the price sellers...

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