answerstohomework2spring2010 - Economics 102 Spring 2010...

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1 Economics 102 Spring 2010 Home Assignment #2 Due2/17/10 at the lecture Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework (legibly). Make sure you write your name as it appears on your ID so that you can receive the correct grade. Please remember the section number for the section you are registered, because you will need that number when you submit exams and homework. Late homework will not be accepted so make plans ahead of time. Please show your work. Good luck! Problem 1 The following table gives the demand and supply for pairs of winter boots at two different prices. Assume that the demand and supply functions are linear. Price Quantity Demanded Quantity Supplied 30 720 90 120 180 360 (a) Calculate the demand and supply functions for this market. Use the information in the table to find the equations of the 2 lines. Demand: P = (-1/6) Q d + 150 Supply: P = Q s /3 (b) Find the equilibrium price and quantity in this market. Set the demand and supply equations equal to each other to find the equilibrium values. (-1/6) Q + 150 = Q/3 Q=300 Plug the equilibrium quantity of 300 into the demand or supply equation to find the equilibrium price. P = 300/3 = 100 (c) The government puts a tax of $5 on each pair of winter boots, requiring producers to give the government $5 for every pair they sell. (i) What will the new equilibrium price and quantity be in the boot market once this tax is implemented? Hint: the numbers in this question are not “nice”: you may want to use a calculator when doing this set of questions. The supply curve shifts leftward as a result of this tax. For every quantity, the price they charge will be $5 higher. The new supply curve is given by
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2 P=Q s /3 +5 Then, you can find the intersection of the new supply curve and the demand curve (remains the same) to find the new equilibrium. (-1/6) Q + 150 = Q/3 + 5 Q = 290 P = 101.67 (ii) Calculate consumer and producer surplus and the government’s tax revenue as a result of this policy. The supply curve shifts to the left after the tax is imposed: at every quantity the price will now be $5 higher than it was initially . Consumer surplus is the area of the pink triangle. The producer surplus is the area of the green triangle. The area of the blue rectangle is tax revenue. The height of this rectangle is 5 (the level of the tax). CS = (1/2) * 290* (150-101.7) =
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This note was uploaded on 05/27/2011 for the course ECON 201 taught by Professor Caltech during the Spring '10 term at Wisc Eau Claire.

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answerstohomework2spring2010 - Economics 102 Spring 2010...

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