Ch.9 HW - number of firms who continue to compete in the...

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Anthony Marsala Professor Woodbury EC251H Sec. 2 Ch. 9 Homework Pg. 305 #11, 14, 15, 30, 31, 32 11. Welfare = Consumer Surplus + Producer Surplus + Tax Revenues An ad valorem sales tax (α) will shift the market price supply curve by +α and consequently increase the equilibrium price. This will effectively reduce consumer surplus and producer surplus at the same time that tax revenues are increasing. However, the tax revenues will not completely offset the reduction in consumer/producer surplus so a deadweight loss will occur resulting in a lower welfare. 14. If a tax is based on economic profit it will have no long term effects on the competitive firms in the market because they are making zero economic profit. However, if the tax is based on business profit and business profit is greater than economic profit it will raise firms’ after-tax costs and consequently reduce the
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Unformatted text preview: number of firms who continue to compete in the market. 15. A lump sum tax assessed individually on each competitive firm in the market will reduce consumer surplus by more than government tax revenue increases. The tax will have no effect on producer surplus and since W = CS + PS + T, the total welfare will decrease because the tax revenues do not completely offset the fall in consumer surplus. 30. 31. The government will choose a tariff over a quota because they gain tariff revenue and consequently suffer less deadweight loss than if a quota was imposed. 32. p = 60 Q At p = 30, Q = 30. Since the slope of the demand curve is -1, the consumer surplus will be a right triangle with base 30 and height 30. Therefore the consumer surplus is (30 x 30) = 450...
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This note was uploaded on 10/04/2011 for the course EC 251h taught by Professor Woodbury during the Fall '10 term at Michigan State University.

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Ch.9 HW - number of firms who continue to compete in the...

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