Quiz9_F10_Key - 3550 Quiz 9 F10 Last Name: ___ First Name:...

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Unformatted text preview: 3550 Quiz 9 F10 Last Name: ___ First Name: Analyze the effect on social welfare of a sales tax Ex) Demand and supply for beer (per sixpack) in Denton can be illustrated by the following equations: (Inverse) Demand: (Inverse) Supply: P Before Tax or Subsidy After Tax CS=0.5*(2012)*200=800 CS=0.5*(2010)*250=1,250 PS=0.5*(95)*200=400 PS=0.5*(105)*250=625 Tax Revenue=$3*200=600 TS=0.5*(205)*250=1,875 TS=800+400+600=1800 S D D w Tax 200 250 500 b. Now let us assume that the government imposes a $3 excise tax on each producer. Calculate total surplus (=consumer surplus + producer surplus + government tax revenue) c. Measure the deadweight loss TS1TS2=18751800=75 or 0.5*Tax*Q=0.5*3*50=75 P = 20 1 Q [or Q = 25P + 500, if you prefer] 25 1 P = 5 + Q [or Q = 50P 250, if you prefer] 50 a. Calculate total surplus (=consumer surplus and producer surplus). 20 17 P =12 10 D P =9 S 5 3550 Quiz 9 F10 Last Name: ___ First Name: Analyze the effect on social welfare of a subsidy. d. Now let us assume that the government provides a $3 subsidy to each producer. Calculate total surplus (=consumer surplus + producer surplus government subsidy expenditure) P After Subsidy CS=0.5*(208)*300=$1800 PS=0.5*(115)*300=$900 Subsidy Expenditure =$3*300=$900 20 TS=CS+PSSubsidy=$1800 17 S S w subsidy S P =11 10 D P =8 5 D 3 250 300 500 e. Measure the deadweight loss TS1TS3=18751800=75 or 0.5*Subsidy*Q=0.5*3*50=75 ...
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This note was uploaded on 03/14/2012 for the course ECON 2243 taught by Professor Henryfors during the Spring '12 term at Abant İzzet Baysal University.

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