{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Correction Q4 - Correction Q4 p14 The Consumer surplus was...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Correction Q4, p14 . The Consumer surplus was computed incorrectly as q (1000 ° p ) 1 2 instead of Q (1000 ° p ) 1 2 , where q is the quantity supplied by a single °rm and Q is the total quantity supplied by all °rms together. Note that we are not going to ask you a question like Q4 in the exam. This question was very challenging. The solution to Q4 is correct until the very last paragraph. The last paragraph should be: "In this instance, each producer makes pro°t ° = 7400 , for a total producer surplus of N = 4 ± 7400 = 29 ; 600 . Consumer surplus is still given by 1 2 base times height, where the height is the distance between the y-intercept and the price: h = 1000 ° 280 = 720 . The base is still given by the TOTAL quantity supplied Q = 720 . So CS = 1 2 720 2 = 259 200 . And government surplus is the amount of the tax times the number of °rms onto which the tax is levied GS = 4 ± 15 ; 000 = 60 ; 000 . Total surplus is TS = PS + CS + GS = 29600 + 1 2 720 2 + 60000 = 348 800 This is clearly LARGER than the original surplus of 320,000." Explanation : What happens here? Why does a tax increase welfare? (This
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern