This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: PS # 4 Outlines of Suggested Answers Bruce Brown, Econ. 1 (Micro-Principles) SMC 1. True or False? i. F; ii. T; iii. F; iv. T; v. T; vi. F; vii. F; viii. T; 2) The below graph shows the market for good X, initially with equilibrium quantity, Q X * = 20 and equilibrium price, P * = 10. Show the effect of an excise tax of 6 $/unit legally collected from the sellers a) $8 per unit; b) $14 per unit; c) Tax revenue = (tax per unit) · Q(after tax) = (6)(16) = $96 For d and e give per unit tax incidence instead of totals requested: ( the total amount of money collected from sellers would be: $32; and from buyers: $64) d) Economic incidence on suppliers = $2 per unit. e) Economic incidence on demanders = $4 per unit f) The price elasticity of demand (as price changes from $10 to $14) = (4/18) ÷ (4/12) = .22/.33 = 67 g) The price elasticity of supply (as price changes from $10 to $8) = (4/18) ÷ (2/9) = .22/.22 = 1 [because supply is more elastic than demand, economic incidence on suppliers will be smaller than...
View Full Document
This note was uploaded on 03/22/2012 for the course ECON 1 taught by Professor Abdel-rahman during the Spring '08 term at Santa Monica.
- Spring '08