Problem 1: It is hot day, and Bert is very thirsty. Here is the value he places on a bottle of water:
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Value of first bottle
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$7
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Value of second bottle
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5
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|
Value of third bottle
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3
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Value of fourth bottle
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1
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a. From this information, derive Bert's demand schedule. Graph his demand curve for bottled water.
b. If the price of a bottle of water is $4, how many bottles does Bert buy? How much consumer surplus does Bert get from his purchases? Show Bert's consumer surplus in your graph.
c. If the price falls to $2, how does quantity demanded change? How does Bert's consumer surplus change? Show these changes in your graph.
Problem 2: How do the elasticities of supply and demand affect the deadweight loss of a tax? Why do they have this effect?
Problem 3: What happens to the deadweight loss and tax revenue when a tax is increased?
Problem 4: What do you mean by tax incidence? What determines the tax incidence, Illustrate with the help of diagram?