Economics 3101
Problem Set 1 (Review of 202)
Winter 2008
1.
Demand:
Q
d
= 35 – 3P, Supply:
Q
s
= 5 + 2P
For this demand and supply system,
use graphs and math to answer the following.
a. Solve for the equilibrium price and quantity.
b. A ceiling (maximum) price is imposed at $4.
i.What is the quantity demanded?
ii.What is the quantity supplied?
iii.Indicate whether there is a shortage, surplus, or a nonbinding constraint.
c. A floor (minimum) price is imposed at $4.
i.What is the quantity demanded?
ii.What is the quantity supplied?
iii.Indicate whether there is a shortage, surplus, or a nonbinding constraint.
2.
Consider again the supply and demand system in #1.
Suppose an excise (per unit) tax
in the amount of $2.00 is imposed.
A. What is the equilibrium price and quantity (P
AT
, Q
AT
)?
B.
What is the price received by producers net of the tax (P
N
)?
C.
How much tax revenue does this tax create?
D.
What proportion of the tax is borne by consumers?
E.
What proportion of the tax is borne by producers?
3.
Suppose instead a new demand function:
Q
d
= 11.
Now impose the tax again and
answer the same questions as above for this case.
4.
Use the same supply and demand as in #1 to answer the following questions, assuming
that the tax of $2 per unit is imposed on consumers instead.
A. What is the equilibrium price and quantity (P
AT
, Q
AT
)?
B.
What is the price consumers pay gross of the tax (P
G
)?
C.
How much tax revenue does this tax create?
D.
What proportion of the tax is borne by consumers?
E.
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 Winter '08
 SCHULZ
 Economics, Supply And Demand, Qat

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