Assignment Problem: Microeconomics
Part A - Linear Demand and Linear Supply
Suppose that the demand and LR supply for broccoli is given by
Qd = 1,000 - 5P
Qs = 4P - 80
Where Q is hundreds of bushels per year and P is price in dollars per hundred bushels.
a) What are equilibrium price and quantity? What is CS and PS?
b) Suppose the government imposed a quota of 300 bushels. What is the equilibrium price? CS and PS? Total Surplus? DWL?
c) Suppose the government imposes a price floor of $140. What is the equilibrium quantity? What are CS and PS? Total Surplus? DWL?
d) Suppose the government imposes a price ceiling of $95. What is the equilibrium quantity? CS? PS? DWL?
e) What tax will lead to the same quantity sold as the quota? What is the equilibrium quantity? CS? PS? DWL? Tax Revenue?
Complete the table below:
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No distortion
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Quota
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Price floor
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Price ceiling
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Tax
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Quantity
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400
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300
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Consumer price
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95
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Producer price
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CS
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1600
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9,000
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PS
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24,750
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Tax revenue
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Total surplus plus revenue
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33,750
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DWL
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2,250
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Suppose you wanted to limit the amount of broccoli sold to 300 thousand bushels a year. Which policy would you choose? Why?
What is the incidence of the tax? What share of the tax do consumers bear? Why is the consumer share not the same as the producer share? Is this "Fair?" Why or why not? What are the relative supply and demand elasticities? How do you know? Graph each situation.
Part B - Non-linear Demand and Linear supply
Suppose that the inverse demand and LR supply for broccoli is given by
P = 20/(Qd + 1)
P = Qs + 2
Where Q is thousands of bushels per year and P is price in dollars per thousand bushels.
a) What are equilibrium price and quantity? What is CS and PS?
b) Suppose the government imposed a quota of 2 (thousands) bushels. What is the equilibrium price? CS and PS? Total Surplus? DWL?
c) Suppose the government imposes a price floor of $20/3. What is the equilibrium quantity? What are CS and PS? Total Surplus? DWL?
d) Suppose the government imposes a price ceiling of $4. What is the equilibrium quantity? CS? PS? DWL?
e) What tax will lead to the same quantity sold as the quota? What is the equilibrium quantity? CS? PS? DWL? Tax Revenue?
Complete the table below:
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No distortion
|
Quota
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Price floor
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Price ceiling
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Tax
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Quantity
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3
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2
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Consumer price
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4
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Producer price
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20-Mar
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CS
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12.72
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PS
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Tax revenue
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Total surplus plus revenue
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|
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|
|
|
|
DWL
|
|
|
|
|
|
Suppose you wanted to limit the amount of broccoli sold to 2 thousand bushels a year. Which policy would you choose? Why?
What is the incidence of the tax? What share of the tax do consumers bear? Why is the consumer share not the same as the producer share? Is this "Fair?" Why or why not? What are the relative supply and demand elasticities? How do you know? Graph each situation.
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