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Discussion section problem set 4 econ 200 Fall 2010-1

# Discussion section problem set 4 econ 200 Fall 2010-1 - (c...

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Problem Set 4 Discussion Sections Economics 200 We will review these problems in discussion sections beginning Wednesday, September 29. 1. Draw a supply and demand diagram of the market for Japanese cars in the United States. Suppose the U.S. government imposes a strict restriction on the quantity of Japanese cars sold in the United States. This restriction would state the maximum number of Japanese cars that the government would allow to be supplied in the U.S. market. Show what happens in this market if the quantity restriction is less than the equilibrium quantity. What will happen if the quantity restriction is greater than the equilibrium quantity? 2. Demand and supply in the yo-yo market are as follows: Price Demand Supply \$1.00 1,000 0 \$1.50 900 0 \$2.00 800 0 \$2.50 700 100 \$3.00 600 200 \$3.50 500 300 \$4.00 400 400 \$4.50 300 500 \$5.00 200 600 (a) Find the initial equilibrium price and quantity. (b) Suppose the government imposes a new \$1.00/unit tax on the producers of yo-yos. Find the new equilibrium price and quantity.
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Unformatted text preview: (c) How much of the tax is borne by the sellers? (d) How much of the tax is borne by the buyers? (e) Senator Duncan, from a state with several yo-yo factories, has proposed legislation that would change the yo-yo tax by switching it from the seller to the buyer, under the rationale that yo-yo makers are losing money and cannot afford to pay the tax. If the bill passes, what will be the new equilibrium price and quantity? (g) How much of the \$1.00 tax is borne by the seller under Duncan’s bill? (h) How much of the \$1.00 tax is borne by the buyer under Duncan’s bill? 3. In lecture, we focused on the effects of a tax on a good. Now consider a subsidy. In particular, suppose the government pays \$2 to the buyers of a good for each unit of the good they purchase. How does the subsidy affect consumer surplus, producer surplus, tax revenue, and total surplus? Did this subsidy lead to a deadweight loss?...
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