Question

HW 1-6 (please explain) greatly confused

1. At a price of $50 a ticket, the local hockey team discovers that there are many empty seats. This is evidence that: A the current price should be raised. B a shortage exists at the current price. C the equilibrium price is higher than $50. D the current price is higher than the equilibrium price.

2. Larry, Curly, and Moe each like funny movies. The current movie costs $7. Larry values it at $12, Curly at $10, and Moe at $8. Suppose that if the government taxes books at $2 each, the selling price will rise to $9. A consequence of the tax is that A consumer surplus shrinks by $9 and tax revenues increase by $6, so there is a deadweight loss of $3. B consumer surplus shrinks by $6 and tax revenues increase by $6, so there is no deadweight loss. C consumer surplus shrinks by $5 and tax revenues increase by $6, so there is no deadweight loss. D consumer surplus shrinks by $5 and tax revenues increase by $4, so there is a deadweight loss of $1. E consumer surplus shrinks by $6 and tax revenues increase by $4, so there is a deadweight loss of $2.

3. Suppose that deforestation in Alaska has led to dangerously low numbers of Sitka spruce trees. Taylor guitars are made with solid Sitka spruce tops. Deforestation in Alaska will cause prices to and consumer surplus to in the market for Taylor guitars. A increase; increase B decrease; increase C increase; decrease D decrease; decrease

4. Consider a market characterized by the following supply and demand equations: P = 130 − 6QD P = 9 + 5QS The government imposes a price floor of $60 in this market. What are the equilibrium price and quantity? (Round to the nearest tenth if necessary.) A P=$60, Q=10.2 B P=$60, Q=11 C P=$60, Q=11.7 D P=$64, Q=10.2 E P=$64, Q=11

5. Harvey, Cleo, and Jack each like pet treats. The current treat costs $2. Harvey values it at $5, Cleo at $4, and Jack at $3. Suppose that if the government taxes treats at $1.50 each, the selling price will rise to $3.50. A consequence of the tax is that A consumer surplus shrinks by $4 and tax revenues increase by $3, so there is a deadweight loss of $1. B consumer surplus shrinks by $4 and tax revenues increase by $4, so there is no deadweight loss. C consumer surplus shrinks by $1.50 and tax revenues increase by $1.50, so there is no deadweight loss. D consumer surplus shrinks by $1.50 and tax revenues increase by $4.50, so there is a deadweight loss of $3. E consumer surplus shrinks by $4 and tax revenues increase by $6, so there is a deadweight loss of $2.

6. Supply and demand for Carolina basketball tickets can be characterized by the equations P = 21 + 11QS and P = 51 − 4QD. In equilibrium, consumer surplus is and producer surplus is . A) $18 ... $8 B) $15 ... $15 C) $43 ... $30 D) $8 ... $22 E) $16 ... $44

Answer 1

1. At a price of $50 a ticket, the local hockey team discovers that there are many empty seats.

This is evidence that: D the current price is higher than the equilibrium price. Equilibrium price is price at which demand and supply will be equal.

Above equilibrium price supply is more than demand. As sellers will be ready to sell more but buyers will buy less.

2. Larry, Curly, and Moe each like funny movies. The current movie costs $7. Larry values it at $12, Curly at $10, and Moe at $8. Suppose that if the government taxes books at $2 each, the selling price will rise to $9. A consequence of the tax is that A consumer surplus shrinks by $9 and tax revenues increase by $6, so there is a deadweight loss of $3. B consumer surplus shrinks by $6 and tax revenues increase by $6, so there is no deadweight loss. C consumer surplus shrinks by $5 and tax revenues increase by $6, so there is no deadweight loss. D consumer surplus shrinks by $5 and tax revenues increase by $4, so there is a deadweight loss of $1. E consumer surplus shrinks by $6 and tax revenues increase by $4, so there is a deadweight loss of $2.

Consumer surplus earlier was $9 ( Cost was $7 but larry was ready to take at $12(means surplus was 5, similarly Curly at $10(means surplus of $3) and Moe at $8( 1$ surplus).)

Now, tax makes price: $9. Only Larry and Curly will buy as they are still interested (since they were ready to pay higher price but Moe will not buy). Now, consumer surplus will be $3 for Larry + $1 for Curly= $4. Hence from $8 it reducse to $4. It shows decrease by $5. tax will be $2 for Larry and Curly each which will be equal to $4.

Hence correct option is: D.

3. Suppose that deforestation in Alaska has led to dangerously low numbers of Sitka spruce trees. Taylor guitars are made with solid Sitka spruce tops. Deforestation in Alaska will cause prices to and consumer surplus to in the market for Taylor guitars. A increase; increase B decrease; increase C increase; decrease D decrease; decrease

Correct option is : C.

IIncrease in raw material price will make taylor guitar prices to increase. This will decrease consumer surplus.

4. Consider a market characterized by the following supply and demand equations: P = 130 − 6QD P = 9 + 5QS The government imposes a price floor of $60 in this market. What are the equilibrium price and quantity? (Round to the nearest tenth if necessary.) A P=$60, Q=10.2 B P=$60, Q=11 C P=$60, Q=11.7 D P=$64, Q=10.2 E P=$64, Q=11

Equilibrium is when Demand equation = supply equation

Here, 130-6QD= 9+5Qs

121= 11Q

Hence Q = 121/11= 11

Putting Q in any of the Qs or Qd equation we will get P

130-6(11)= 130-66= 64

Hence correct option is:

E: P=$64, Q=11