Ans_HW_ch10

# Ans_HW_ch10 - receipts are \$15 million The deadweight loss...

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Answer Ch 10 10.1 a) The market will clear. The excise tax will alter equilibrium price and quantity, but there will be no excess demand or excess supply. b) The market will clear. The subsidy will alter equilibrium price and quantity, but there will be no excess demand or excess supply. c) The market will not clear. A price floor set above the equilibrium price will create excess supply. d) The market will not clear. A price ceiling set below the equilibrium price will create excess demand. e) The market will not clear. A quota limiting output below the equilibrium level will create excess supply since the price will be driven above the equilibrium price. 10.2 With a \$3 tax, setting d s Q Q = implies 10 .5( 3) 2 7 s s s P P P - + = - + = Substituting into the equation for d P implies 10 d P = . Substituting this price into the equation for quantity demanded implies 5 Q = million. At these prices and quantities, consumer surplus is \$25 million, producer surplus is \$12.5 million, and government tax

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Unformatted text preview: receipts are \$15 million. The deadweight loss is \$1.5 million. The deadweight loss measures the difference between potential net benefits (\$54 million) and the net benefits that are actually achieved (\$25 + \$12.5 + \$15 = \$52.5 million). 10.5 Using the supply and demand curves from Example 10.1 and an excise tax of \$0.40 implies 165 50( 0.40) 66 55 0.75 s s s P P P-+ = + = Substituting into the equation for d P implies 1.15 d P = . Substituting s P into the supply equation implies 66 55(0.75) 107.40 Q = + = . Finally, the government tax receipts will be 0.40(107.40) 42.95 tQ = = . These values correspond with those in Table 10.1. Graphically, the solution is 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 50 100 150 200 250 Quantity Price Supply Supply + 0.40 Demand...
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## This note was uploaded on 02/29/2012 for the course 220 320 taught by Professor Raven during the Summer '10 term at Rutgers.

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Ans_HW_ch10 - receipts are \$15 million The deadweight loss...

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