Question

In: Economics

Suppose the equation for the demandcurve in a market is PD=100-1.5QD, where QDis the...

Suppose the equation for the demand curve in a market is PD=100-1.5Q_D, where Q_Dis the quantity demanded and P is the price. Also, suppose the equation for the supply curve in the same market is PS=0.5Q_S , where Q_s is the quantity supplied. Suppose there is an external cost of $12 associated with the production of each unit of the good.

What are the socially optimal quantity and price?

P=$37; Q=50
P=$25; Q=50
P=$22; Q=44
P=$34; Q=44

Suppose that to internalize the externality, a tax of $12 is imposed by government. Then total surplus which is

$2500 before tax will decrease to $1936 after tax.
$2500 before tax will decrease to $2200 after tax.
$1900 before tax will increase to $1936 after tax.
$1900 before tax will increase to $2200 after tax.

Expert Solution

Given,

Supply equation, P = 0.5Qs

At equilibrium Qd is equal to Qs

100 - 1.5Q = 0.5Q

2Q = 100

Q = 50 units

P =$ 25 per unit

Here an external cost of $ 12 occurs. Thus the supply curve will change. The price received by sellers will be $ 12 less than the price paid by buyers.

0.5Q = 88 - 1.5Q

2Q = 88

Qt = 44 units

Pt = $ 34 / unit (= 100 - 1.5×44)

Option D. P = $ 34, Q = 44

Before tax

Consumer surplus =(1/2)×(100-25)×50 = $ 1875

Producer surplus = (1/2)×25×50 = $ 625

Total surplus = 1875 + 625 = $ 2500

After tax

Tax revenue = 12 × 44= $ 528

DWL = (1/2)×12 × 6 = $ 36

CS =(1/2)×(100 -34) ×44 = $ 1,452

PS = (1/2)×22×44 = $ 484

TS = 1452 + 484 = $ 1,936

Option A.

Rahul Sunny answered 2 years ago

Suppose the market demand for dolls is given by the following equation: Qd = 100 -...

Suppose the market demand for dolls is given by the following equation: Qd = 100 - 1.5xP + 0.6xP(sub) - 0.4xP(comp) + 8xInc, where Qd = number of units (dolls) demanded per period P = price per doll P(sub) = the price of a substitute good P(comp) = the price of a complement good Inc = an index of consumers income At present P = $10, P(sub) = $5, P(comp) = $15, & Inc = 41. As a result the...

PD control 1. The equation of motion for the DC motor are given by the equation:...

PD control 1. The equation of motion for the DC motor are given by the equation: J ¨?m + (B + KbKT Ra ) ? ?m = KT Ra Va (2) where: J = 0.01kg · m2 , B = 0.001N · m · s, KT = 0.02N · m/A, Kb = 0.02V /s and Ra = 10?. (a) Suppose that feedback is added to the system to achieve position control of the motor shaft. Given a desired shaft position...

Suppose the inverse market demand equation is P = 95 – 10Q and the inverse market...

Suppose the inverse market demand equation is P = 95 – 10Q and the inverse market supply equation is P = 5 + 5Q. A price floor of $85 will result in: a. a shortage of 10 units. b. a shortage of 15 units. c. a surplus of 10 units. d. a surplus of 15 units. e. None of the above.

Suppose the domestic demand for coffee is given by the equation Q = 100 - P,...

Suppose the domestic demand for coffee is given by the equation Q = 100 - P, domestic supply by the equation Q = P. The world price for coffee is $20 per unit. The government decides to impose an import quota limiting imports to 10 units. How much deadweight loss will this generate? Please explain clearly using graphs.

Suppose that the demand curve for barley can be characterized by the equation P = 100...

Suppose that the demand curve for barley can be characterized by the equation P = 100 - 2Qd. Suppose further that price was $10.00 and a $10.00 tax is imposed on the market. a) How many barleys would be purchased at a price of $10.00? After tax? b) What is the amount of tax revenue generated by the tax? c) How much excess burden is generated by the tax? d) What is the amount of consumer surplus before and after...

The consumer demand equation for tissues is given by q = (100 − p)2, where p...

The consumer demand equation for tissues is given by q = (100 − p)2, where p is the price per case of tissues and q is the demand in weekly sales. (a) Determine the price elasticity of demand E when the price is set at $34. (Round your answer to three decimal places.) E = Interpret your answer. The demand is going ? up down by % per 1% increase in price at that price level. (b) At what price should tissues...

Suppose one market has a demand curve ?(?) = 100 − ?? （1）If this market has...

Suppose one market has a demand curve ?(?) = 100 − ?? （1）If this market has many firms supplying the identical products to the consumers, and the industry has a cost function ?(?) = 2? ^2. What are the market equilibrium price and quantity? （2）What is the price elasticity of demand at the market equilibrium in (1)? （3）If this market has only one firm supplying the products, with cost function ?(?) = 2?^2. What are the market equilibrium price and...

1. Suppose demand is given by PD = 20 − .03QD and supply is given by...

1. Suppose demand is given by PD = 20 − .03QD and supply is given by PS = 6 + .04QS. Now suppose the government imposes a $3.5 tax on suppliers. a.) What is the total welfare? b.) What is the deadweight loss?

Question 1: For an industry, Qd = 40 – Pd and Qs = Ps.. Suppose the...

Question 1: For an industry, Qd = 40 – Pd and Qs = Ps.. Suppose the government imposes a price floor of $28. Complete the following table and explain how you derived your answers. No Price Floor Price Floor Consumer Surplus Producer Surplus _____________________________________________________________ Total Surplus Deadweight Loss

Suppose the demand curve in a city is given by P = 100 - 2Q, where...

Suppose the demand curve in a city is given by P = 100 - 2Q, where P denotes price and Q the local GDP. The supply curve is given by P = 10 + Q. Now Suppose that due to an initial impulse of ΔX = 10 (Increase in exports) and further induced increases in local incomes the new induced demand curve changes to P = 150 - 2Q. Where are the local GDP and the corresponding income multiplier if...