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pres08_ass3sol - W1105.002 Principles of Economics...

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W1105.002 Principles of Economics Assignment 3, due Febr. 14 th 2008 Before submitting your assignment, please make a copy for your own use. Your assignment will not be returned to you before the recitation sessions. Be sure you include: Name: Recitation Section # 1. The economic incidence of a tax, that is whether a tax hits consumers or sellers the hardest, depends on a. the size of the tax. b. the relative price elasticity of demand and supply. c. the income elasticity of demand. d. whether consumers or sellers are legally responsible for the payment of the tax. 2. Luxury goods such as health care, mink coats and Ferrari cars have: a. demand curves that are price elastic. b. low cross price elasticity. c. low income elasticities of demand but high price elasticity of supply. d. income elasticities of demand higher than one. e. price elasticity of supply that is lower than 2. 3. The deadweight loss generated by a specific tax a. depends on the income elasticity of demand. b. can be measured using the concept of substitute goods. c. is higher the higher the price elasticity of the demand of the product. d. always falls entirely on buyers. e. is always larger than the revenue raised by the tax. 4. When the price of bread is $2 per pound, 60 tons of bread is sold on the market. When it is $4 per pound, 40 tons of bread is sold. a. the demand for bread is inelastic. b. the demand for bread is unit elastic. c. the demand for bread is elastic. d. the demand for bread is infinitely elastic. Definitions: Total Surplus: the sum of consumer surplus and producer surplus – its a dollar evaluation of the gains from trade enjoyed by buyers and sellers. Tax incidence: the actual division of the economic burden of the tax between buyers and sellers in a market. It depends on the relative price elasticity of demand and supply.
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1. Rent controls and the Law of Unintended Consequences: The price of rental units in Merritt, NC is determined by market forces. Currently, demand and supply schedules are as follows: Monthly Rent $ Quantity Demanded Quantity Supplied 0 3,000 units 0 100 2,500 0 200 2,000 200 300 1,500 500 400 1,000 800 500 500 1,100 600 0 1,400 The demand equation that corresponds to the above demand schedule is QD= 3,000 – 5P
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This homework help was uploaded on 04/08/2008 for the course ECON W1105 taught by Professor Musatti during the Spring '07 term at Columbia.

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pres08_ass3sol - W1105.002 Principles of Economics...

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