econOld-Exam2

econOld-Exam2 - ECON 0100-SECOND MIDTERM EXAM Problem (25...

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ECON 0100--SECOND MIDTERM EXAM Problem (25 points) The graph below shows the market for tobacco in Country A. Use it to answer the following questions. 1. Determine the equilibrium price and quantity in the tobacco market. (2) 2. The government places a $12 excise tax on tobacco. Determine the following values: a. The quantity of tobacco sold and the price buyers pay for tobacco. (2) b. The deadweight loss associated with the tax. (2) c. Total government revenue from the tax. (2) d. Producer surplus after the tax. (2) e. Who bears the larger burden of the tax on tobacco? The buyers or the sellers? Explain. 3. Assume that the government removes the tax, but makes it illegal to sell tobacco for less than $18 per unit, and supports this price floor by buying all surplus tobacco produced. Determine the following values: a. The quantity of tobacco produced and the quantity of tobacco purchased by the government. (2) b. The change in consumer surplus. (2) c. The deadweight loss associated with the imposed price control. (2) 3. Assume the price floor is lifted and the domestic market opens to international trade in tobacco. Country A is a price-taker in the tobacco market. The world tobacco price is $10. Find the following values: a. The tobacco price and quantity of tobacco consumed in Country A after trade begins. (3) b. The quantity of tobacco imported. (2) c. The change in total surplus due to trade. (2) $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 $22 $24 $26 $28 $30 0 5 10 15 20 25 30 35 40 45 50 55 Quantity Price Supply Demand
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Multiple Choice (2 points each -- 50 points) 1. The graph to the right depicts the market for peanuts. The government has set a price floor for peanuts at price P 2 . If the demand curve for peanuts shifts from D 1 to D 2 . . a. the price will fall to P 3 . b. a surplus will occur at the price floor of P 2 . c. the market price will stay at P 1 due to the price floor. d. a shortage will occur at the price floor of P 2 . 2. When a tax is imposed on a good a. the market price falls because demand declines. b. the market price rises because demand falls. c. the market price falls because supply falls. d. a wedge is placed between the price buyers pay and the price sellers receive. 3.
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econOld-Exam2 - ECON 0100-SECOND MIDTERM EXAM Problem (25...

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