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Unformatted text preview: PADP 8670 Fertig Homework 5 Due October 24, 2011 Fall 2011 UGA 1. The demand function for cigars is P=240-2Q and the supply function is P=3+Q, where P is the price per box and Q is the number of boxes. Cigars are taxed at $4 per box. a. Draw the supply and demand before and after the tax is imposed, indicating with actual numbers the quantities and prices before and after the tax. b. Do consumers and suppliers share the cost of the tax equally? If not, what share do they each pay? c. Given your answer to (a), is the price elasticity of demand elastic or inelastic? 2. Assume that the demand for bread is Q=45-4P and the supply of bread is Q=15+8P, where P is the price of a loaf and Q is the number of loaves of bread. Assume that the government wants to ensure that the price of bread never rose above $2 per loaf. The policy proposed is to pay bakers enough of a subsidy for each loaf of bread so that the price is $2 per loaf. How much would the subsidy per loaf have to be? Make sure to draw a graph of the supply and demand before and after the subsidy is given, indicating with actual numbers the quantities and prices before and after the subsidy. ...
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