Comm220 Chapters

# Comm220 Chapters - ∆Welfare = –B – C Q 1 Q Quantity...

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1 CHAPTER 9 – A&SWERS TO THE QUICK QUIZ QUESTIO&S Q1 No, CS increases by the same amount as the decrease in PS. Q2 If supply is relatively inelastic, a price ceiling will increase CS. If demand is relatively inelastic, a price ceiling may result in a net loss to CS. Q3 A tax creates DW loss by increasing price above the free market level and reducing the equilibrium quantity, which results in decreases in both CS and PS. The size of DW loss depends on the elasticities of supply and demand. Price P 0 P max A S D Q 0 Quantity D S Price P 0 P max A C ∆CS = A – B where B > A ∆PS = – A – C

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Unformatted text preview: ∆Welfare = –B – C Q 1 Q Quantity Price P P max D S A B B C ∆CS = A – B where A > B ∆PS = – A – C ∆Welfare = –B – C Q 1 Q Quantity Price P b P P s S D A D t B C Q 1 Q 0 Quantity P b = price paid by buyers P s = price received by sellers t = tax Buyers loss = A + B Sellers loss = C + D Government gain = A + D (tax revenue) Deadweight loss = B + C 2 Q4 a. Q = 7 and P = \$3. b. Q = 6.5, Pb = \$3.5, and Ps = \$2.5. c. Q = 7.5, Pb = \$2.5, Ps = \$3.5, and government cost = \$7,500. Q5 Pg = \$4 and Q = 25. DW loss = \$12.6 billion....
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## This note was uploaded on 01/22/2012 for the course COMM 220 taught by Professor J.garon during the Spring '08 term at Concordia Canada.

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Comm220 Chapters - ∆Welfare = –B – C Q 1 Q Quantity...

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