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54 suppose that the demand curve for wheat is q 100

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5.4Suppose that the demand curve for wheat isQ=100-10pand that the supply curve isQ=10p. What are the effects of a subsidy (negativetax) ofs=1 per unit on the equilibrium, govern-ment subsidy cost,CS,PS, welfare, andDWL?M*5.5Suppose that the government gives rose producersa specific subsidy ofs=11¢ per stem. (Figure 9.4shows the original demand and supply curves.) Whatis the effect of the subsidy on the equilibrium prices andquantity, consumer surplus, producer surplus, govern-ment expenditures, welfare, and deadweight loss?5.6Suppose that the market demand function for cowsisQ=1,000,000p-2, whereQis the number ofcows per month andpis the price per cow. The mar-ket supply function isQ=p.a. What are the equilibrium price and quantity ofcows? What is the consumer surplus, the pro-ducer surplus, and welfare?b. Now suppose that the government provides asubsidy of $100 per cow. What are the new equi-librium price and quantity, the consumer surplus,the producer surplus, and welfare? Round youranswers to whole numbers.
325Exercises5.7What is the welfare effect of an ad valorem sales tax,v, assessed on each competitive firm in a market?*5.8What is the long-run welfare effect of a profit tax (thegovernment collects a specified percentage of a firm’sprofit) assessed on each competitive firm in a market?*5.9What is the welfare effect of a lump-sum tax,uni2112,assessed on each competitive firm in a market? (Hint:See the Challenge Solution in Chapter 8.)5.10The United States not only subsidizes producers ofcotton (in several ways, including a water subsidyand a price support) but also pays $1.7 billion toU.S. agribusiness and manufacturers to buy Ameri-can cotton. It has paid $100 million each to Allen-berg Cotton and Dunavant Enterprises and largeamounts to more than 300 other firms.28Assume forsimplicity that specific subsidies (dollars per unit) areused. Use a diagram to show how applying both sub-sidies changes the equilibrium from the no-subsidycase. Show who gains and who loses.*5.11Suppose that the demand curve for wheat isq=100-10pand the supply curve isq=10p.The government imposes a price support atp=6using a deficiency payment program.a. What is the quantity supplied, the price thatclears the market, and the deficiency payment?b. What effect does this program have on consumersurplus, producer surplus, welfare, and dead-weight loss? (Hint: See Solved Problem 9.3.)M5.12Suppose that the demand curve for wheat isQ=100-10pand the supply curve isQ=10p.The government imposes a price ceiling ofp=3.a. Describe how the equilibrium changes.b. What effect does this ceiling have on consumersurplus, producer surplus, and deadweight loss?M5.13The government wants to drive the price of soybeansabove the equilibrium price,p1, top2. It offers grow-ers a payment ofxto reduce their output fromQ1(the equilibrium level) toQ2, which is the quantitydemanded by consumers atp2. Show in a figurehow largexmust be for growers to reduce outputto this level. What are the effects of this programon consumers, farmers, and total welfare? Comparethis approach to (a) offering a price support ofp2,(b) offering a price support and a quota set atQ1,and (c) offering a price support and a quota set atQ2.

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