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ECON 1B03 Lecture Notes - Lecture 11: Deadweight Loss, Economic Equilibrium, Economic Surplus

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School
McMaster University
Department
Economics
Course
ECON 1B03
Professor
Hannah Holmes

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ECON 1B03 Full Course Notes
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Document Summary

Workshop #4 taxes & costs of production: in the market for beer, 1 where q is quantity of cases; p is price in dollars. After the tax: market demand for cigarettes is given by q = 300 - 3p and market supply is q = 2p + 50. The government imposes a tax on consumers, and the new after-tax demand equation is qtax = 270 . Your diagram, above, may be useful for this question. How can you tell from the tax incidence: j&h industries produces breadboards for restaurants. Costs and the selling price of the good, p, are given in dollars. Tfc tvc tc mc afc avc atc p. Mp: fill in the rest of the table. 15: sketch typical short run cost curves. Label the following on your diagram: minavc, minatc and the mc, atc and avc of producing 50 breadboards.

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Related Questions

Suppose you are hired by the Martin guitar company as an economic consultant. You estimate the demand for Martin guitars to be Q = 8000 - 2P. Suppose the supply of Martin Guitars is given by Q = -2000 +3P. What is the equilibrium price of Martin guitars?

  1. What is the equilibrium quantity of Martin guitars?
  2. What is the price elasticity of demand at the equilibrium price and quantity?
  3. What is the price elasticity of supply at the equilibrium price and quantity?
  4. For the next seven questions, suppose a per-unit excise tax of $40 per guitar is levied on the consumers.
  • What price will sellers receive after the tax is levied?
  • What price will consumers pay after the tax is levied?
  • What percent of the tax will be paid by the consumers of Martin guitars? (give an answer between 0 and 100)
  • What percent of the tax will be paid by the suppliers of Martin guitars? (give an answer between 0 and 100)
  • How many guitars will be sold after the tax is imposed?
  • How much consumer surplus do consumers get after the tax?
  • What is the deadweight loss created by this tax?

The market for packets of cigarettes has been described by the following supply and demand functions:

Supply: P = 10 + 4Q Demand: P = 100 - 5Q where P is the price in dollars and Q is the quantity of packets of cigarettes per month (in thousands).

Part A) Construct a graph of supply and demand for this market showing all intercepts. What are the equilibrium prices and quantities? Show these on your graph.

Part B) At the market equilibrium price, what would be the total monthly revenue?

Part C) Calculate consumer surplus at the market equilibrium and indicate this surplus as an area on your diagram.

Part D) Calculate producer surplus at the market equilibrium and indicate this surplus as an area on your diagram.

Part E) Assume that a per-unit tax of $9.00 per packet of cigarettes is imposed by the government on the suppliers of cigarettes. Depict this on your demand and supply diagram. (Hint: the new tax inclusive supply function will be: P = 19 + 4Q). What is the new market equilibrium quantity? What price will consumers now pay and what price will suppliers now receive?

Part F) How much is the government revenue from the tax on suppliers?

Part G) Calculate consumer surplus and producer surplus after the imposition of the tax and any deadweight loss associated with the tax. Indicate these surplus and tax revenue areas on your diagram. Explain what the deadweight loss represents.

Part H) Now assume that instead of imposing a per-unit tax of $9.00 per pack on the suppliers of cigarettes the government decides to apply the same per-unit tax of $9.00 on consumers. Depict this on your demand and supply diagram. (Hint: the new tax inclusive demand function will be: P = 91 - 5Q) What is the new market equilibrium quantity? What price will consumers now pay and what price will suppliers now receive? (5 marks)

Part I) How much is the government revenue from the tax on consumers? (1 mark)

Part J) Who bears the greatest burden of the tax in each case, producers or consumers? Does your answer depend on whether the tax is levied on producers or consumers?

I am really having difficulty understanding Part J - can that please be answered with some detail?

Taxation Question (SHOW ALL WORK)

Suppose that the demand curve (hundreds) for apples is given by Qd = 140 - 5P, where Qd is the number of pounds demanded per year and p is the price per pound. The supply of apples can be described by Qs = 40 + 5P, where Qs is the number of pounds provided.

What is the equilibrium price? (Hint: At the equilibrium, quantity demanded and quantity supplied are equal, Qd = Qs.)

What is the equilibrium quantity supplied and demanded?

Calculate the consumer surplus at the equilibrium price.

Calculate the producer surplus at the equilibrium price.

Calculate the total surplus at the equilibrium price.

Now suppose that the government imposes a tax of $8 per each pound sold, paid by the producers. In this case, what are the price and the consumer surplus?