Question

10 questions on S&D, price floor and excise tax. Graph these coordinates and answer the questions: (you will also have to draw a $4 tax on top of S and, separately, a $6 price floor). Initial equilibrium is (4, $4).

$	S qty	D qty
X	Y	Y
0	0	8
$2	2	6
$4	4	4
$6	6	2
$8	8	0

Question 7 (1 point)

With a price floor of $6, what is the total amount that consumers pay?

a	Under $5
b	Between $5 and $7
c	Between $7 and $10
d	Over $10

Question 8 (1 point)

With the price floor of $6, what is the Producer Surplus?

a	Under $3
b	Between $3 and $9
c	Between $9 and $11
d	Over $11

Question 9 (1 point)

Which scenario would the Producers prefer?

No tax or floor, $2 tax, or $6 price floor?

a	No tax or floor.
b	$4 tax
c	$6 price floor
d	We cannot tell from the data

Question 10 (1 point)

Which scenario would the consumer prefer?

a	No tax or price floor
b	$4 tax
c	$6 price floor
d	We cannot determine this from the data

Answer 1

Price	Supply	Demand
0	0	8
2	2	6
4	4	4
6	6	2
8	8	0

7) At a price floor of $6, consumer pay $6 which is between $5 and $7. Option B is correct.

8) Producer surplus at price floor of $6 is area of portion A + B + C whose sum is (6 - 2) * 2 + (1/2) * (2 - 0) * (2 - 0) = 8 + 2 = 10

It is between $9 and $11

Option C is correct.

9) Producer prefer a situation where there producer surplus is maximized. Tax will reduce the producer surplus which should not be correct.

Producer surplus under no regulation is sum of area B + F + C whose sum is (1/2) * (4 - 0) * (4 - 0) = 8

As producer surplus in price floor of $6 is more than no regulation which we can see in the above part, $6 of price floor is better for producers.

Option C is correct.

10) Consumer prefer a situation where there Consumer surplus is maximized. Consumer surplus will be maximized when there is no tax or price floor because price floor reduce the consumer surplus from A + E + D to D while tax also reduce the consumer surplus.

Option A is correct.