HW4 - price? What is consumer surplus &...

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HOMEWORK # 4 Question 1: Based on the numbers above, add the missing values and determine what kind of goods all 6 goods are (including savings). Question 2: Suppose that the supply and the demand for cigarettes can be characterized by: Supply: Q s = 600 + 100 P Demand: Q d = 1200 – 200 P where Q s is the supply of packs of cigarettes, and Q d is the demand for packs of cigarettes. 1. Draw supply and demand diagram. (Note that the price is on the vertical axis, therefore the equations for supply and demand must be put in the form P as a function of Q’s)
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2. In equilibrium, how many packs of cigarettes are purchased? What is the equilibrium
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Unformatted text preview: price? What is consumer surplus & producer surplus in equilibrium? 3. Suppose that a flat per unit tax of $1.5 is imposed on cigarettes. a) What are the new equilibrium price and quantity? b) Does most of that tax fall on consumers, or suppliers? c) At the new equilibrium, will consumers spend more, less or the same as before on cigarettes? d) How much tax revenue will the government receive? e) Will suppliers earn more, less or the same amount? f) What is the consumer surplus and producer surplus now? g) Calculate the dead weight loss caused by the tax....
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This note was uploaded on 04/04/2012 for the course ECON 010 taught by Professor Stein during the Fall '07 term at UPenn.

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HW4 - price? What is consumer surplus &...

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