Problem set 7 - How does total consumer and producer...

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1. Consider the following demand and supply functions: Q D = 26 – 2p, and Q S = - 9 + 3p a. What are the perfectly competitive price and quantity? Consumer surplus? Producer surplus? Suppose that a price ceiling of P C = 5 is imposed. b. What happens to the market price and quantity? Consumer and producer surplus? Incentives exist for a black market. In light of penalties associated with participating in the black market, assume that the black market demand and supply functions are given by: Q DB = 22 – 2p, Q SB = 1 + p, for Q > 6 c. How much is transaction on the black market? What is the price?
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Unformatted text preview: How does total consumer and producer surplus with the price ceiling and black market compare to that calculated in part a? 2. Consider the same demand and supply functions as in the beginning of problem 1. Suppose that the government imposes an ad valorem sales tax, t, equal to 0.50. a. What are the equilibrium price and quantity? b. What is the total amount of tax revenue that is collected? How much of the tax is borne by producers? Consumers? c. What happens to consumer surplus? Producer surplus? What is the deadweight loss?...
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This note was uploaded on 06/29/2011 for the course ECON 206 taught by Professor Ioanadan during the Fall '10 term at University of Toronto- Toronto.

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