econ11practice1

econ11practice1 - Practice Problem Set 1 ECON 11...

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Practice Problem Set 1 ECON 11 Summer Session C 2010 Microeconomic Theory Yong Yang (You may not use calculators in the exam. The exam questions will have simpler numbers.) 1. The demand function is given by Q D = 600 - 4 P D , and the supply function is given by Q S = - 30 + 3 P S . Answer the following. (a) Draw the supply curve and the demand curve. (b) Find the equilibrium price and the equilibrium quantity. Compute the demand elasticity and the supply elasticity at the equilibrium. (c) Calculate the consumer surplus and the producer surplus. Also mark them in the figure. How much is the social total surplus? (d) Suppose that the demand curve shifts and becomes Q D = 720 - 2 P D . Draw the new demand curve and find the new equilibrium. (e) Calculate the consumer surplus, the producer surplus, and the social total surplus. Does each of them increase or decrease? 2. The demand function is given by Q D = 970 - 2 P D , and the supply function is given by Q S = - 330 + 3 P S . Answer the following. (a) Find the equilibrium. (b) Calculate the social total surplus. (c) Suppose the sales tax of $25 per unit is imposed. Find the new equilibrium. Is the new market equilibrium price higher than the old equilibrium price? Is the new equilibrium quantity larger than the old equilibrium quantity? (d) Compare the social total surplus with the one in (b). Is there a deadweight loss? How much is it? (e) (Difficult: only for ambitious students) Suppose the sales tax is imposed by %10 of the price. Draw the new demand curve and find the new equilibrium. Is it the same with, or different from that in (c)? Also compare the social total surplus with the ones calculated in (b) and in (d). ( Hint : The after-tax conumser price is P D = 1 . 1 P where P denotes the market price. Think why.)
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econ11practice1 - Practice Problem Set 1 ECON 11...

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