--%>
Assignment Help - homework help

Gasoline market-Demand and supply problem

Let us suppose that US gasoline market has the demand and supply curves
Qd = 10 – 0.5Pd
Qs = -2 + Ps when Ps ≥ 2 and Qs = 0 if Ps < 2,

Here quantities stand for millions of gallons per year and prices refer to the amount of $ per gallon

(i) With no tax, determine the equilibrium price and quantity?

(ii) Assume that the government imposes an excise tax of $3 per gallon. Then what will the new equilibrium quantity? Determine the price which buyers pay? And what price will sellers receive?

(iii) Determine the impact of this tax on the consumer excess and the producer excess. In addition, compute the tax collection from government and the welfare deadweight loss.

E

Expert

Verified

With a $3 tax, setting Qd = Q implies

10 - 0.5 (Ps + 3) = -2 + Ps 

After replacing into the equation for Pd implies Pd = 10.  Replacing this price into the equation for quantity demanded entails  million.  At such prices and quantities, consumer excess is $25 million, producer excess is $12.5 million, and government tax receipts are $15 million. The deadweight loss is $1.5 million. The deadweight loss evaluates the difference among potential net benefits ($54 million) and the total benefits which are really attained ($25 + $12.5 + $15 = $52.5 million).

   Related Questions in International Economics

  • Q : Autonomous or accommodating carry

    Which transactions- autonomous or accommodating carry balance in BOP? Answer: Accommodating transactions carry balance in the BOP or balance of payment.

    		•
  • Q : Wars that have an impact on Global

    The professor wants to narrow it down to one or two wars that have affect global economies.

    		•
  • Q : Problem on International trade economy

    If the Chinese economy could create all goods with fewer resources per unit than are needed in US, the citizens of China would: (i) Encompass a comparative advantage in the whole thing. (ii) Be self-sufficient since there would be no potential profits from trade. (iii

    		•
  • Q : Define balance of payment or BOP

    Balance of payment: It is a systematic record of each and every economic transaction of a country with the rest of world in an accounting year.

    		•
  • Q : Equilibrium price of grape jelly problem

    Peanut butter, jelly sandwiches and tuna fish sandwiches are replacements. Assume an international agreement decreased the worldwide catch of tuna by half. The equilibrium price of grape jelly would be: (1) Increases while the equilibrium quantity is reduced. (2) Drop

    		•
  • Q : Need of foreign currency Why foreign

    Why foreign currency or exchange is required? Answer: a) To buy services and goods from other countries. b) To send a gift abroad. c) To buy financial assets in a specific country and d) To contem

    		•
  • Q : Who explained micro and macro economics

    Who explained micro and macro economics?

    		•
  • Q : Determinants of market market structure

    market structure and price-output determination

    		•
  • Q : Current account and capital

    Differentiate among current account and capital account of balance of payment account. State any two transactions of capital account. Answer:

    Q : What is BOP The balance of payment

    The balance of payment account (BOP) account is the statement of each and every economic transaction which takes place between a nation and rest of the world throughout a particular period. BOP account generally comprises of (a) Current account and (b

    		•