ECO101H1 Lecture Notes - Lecture 5: Asteroid Family, Economic Surplus, Demand Curve

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redelephant995

18 Feb 2017

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ECO101H1 Full Course Notes

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Observations: sales tax is usually levied on seller. Incidence of tax does not depend upon whether tax is levied on buyer or seller. *demand shifts upward by , market price is on vertical axis. In both cases: tax incidence is the same. *when tax levied on seller, buyer pays market price (seller receives market price - tax) *when tax levied on buyer, buyer pays market price + tax (seller receives market price) Demand elasticities and the incidence of a tax. Seller receives: p1 + t = p1 + t 10 = p1 (no change) Intuition: buyer completely unresponsive to changes in price, full burden(incidence) on buyers. Seller receives p1 10 (full incidence/burden), i(cid:374) additio(cid:374), qs , tr . Intuition: bu(cid:455)ers ver(cid:455) respo(cid:374)sive to (cid:272)ha(cid:374)ge i(cid:374) pri(cid:272)e (cid:894)qd falls to zero if pri(cid:272)e(cid:895, full burden on sellers. All tax (perfect inelastic demand) some of tax (usual case) *burden of tax dependent on elasticity of supply & demand.

Related Questions

Gulp and Devour
Output	TR	TC	Profit	AC	Price	MR	MC	Marginal
								Profit
1	135	100	35	100	135	135	100	35
2	260	200	60	100	130	125	100	25
3	375	300	75	100	125	115	100	5
4	480	400	80	100	120	105	100	5
5	575	500	75	100	115	95	100	-5
6	660	600	60	100	110	85	100	-15
7	735	700	35	100	105	75	100	-25
8	800	800	0	100	100	65	100	-35

Shady Enterprise
Output	TR	TC	Profit	AC	Price	MR	MC	Marginal
								Profit
1	160	50	110	50	160	160	50	110
2	300	125	175	62.5	150	140	75	65
3	420	220	195	75	140	120	100	20
4	520	350	170	87.5	130	100	125	-25
5	600	500	100	100	120	80	150	-70
6	660	675	-15	112.5	110	60	175	-115
7	700	875	-175	125	100	40	200	-160
8	720	100	-380	137.5	90	20	225	-205

What is the profit-maximizing output for each case? Show that three criteria are equivalent: marginal cost equals marginal revenue, maximum profit, and marginal profit equals zero.

copperkoala891

The general supply function for new housing in New Orleans is estimated to be

Qs = 96 + 2P - 10PL + 4PK

where P is the price per square foot of new housing in New Orleans, PL is the average hourly wage rate for construction workers, and PK is the price of capital (as measured by the average rate of interest paid on loans to home builders). Qs is measured in units of 1,000 square feet per month.

5. Does it make sense for PL and PK to have negative coefficients in the general supply function? Explain why or why not.

6. If the average hourly wage rate for construction workers is $10 per hour and the average rate of interest on loans to builders is 9 percent (i.e., PK = 9), then the supply function for new housing is

Qs = ______________________.

7. Graph the supply curve for new housing in the graph below. Label supply S0.

8. Solve mathematically for equilibrium price and quantity. Show your work:

PE = $__________ per square foot.

QE = __________ square feet per month (in 1,000s).

9. Do your supply and demand curves intersect at PE and QE found in question 8 above? Should they?

10. At the equilibrium point in question 8, compute consumer, producer, and social surpluses:

CS = $____________

PS = $____________

SS = $____________

11. Suppose New Orleans suffers a serious recession that causes average monthly income to fall from $1,500 to $1,100 per month. If other things remain the same, the demand for new housing in New Orleans is now:

Qd = _______________________.

Plot this new demand curve in the figure below. Label it D'.

12. Suppose that because of the recession in New Orleans, the wage rate for construction workers falls to $8 per hour. If other things remain the same, the supply of new housing in New Orleans is now:

Qs = _______________________.

Plot this new supply curve in the figure. Label the new supply curve S'.

13. After income falls to $1,100 and wages fall to $8, new equilibrium price and quantity are

PE = $__________ per square foot QE = __________ square feet per month (in 1,000s)

Housing Market in New Orleans

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blackreindeer838

The general supply function for new housing in New Orleans is estimated to be

Qs = 96 + 2P - 10PL + 4PK

5. Does it make sense for PL and PK to have negative coefficients in the general supply function? Explain why or why not.

Qs = ______________________.

7. Graph the supply curve for new housing in the graph below. Label supply S0.

8. Solve mathematically for equilibrium price and quantity.

Show your work: PE = $__________ per square foot.

QE = __________ square feet per month (in 1,000s).

9. Do your supply and demand curves intersect at PE and QE found in question 8 above? Should they?

10. At the equilibrium point in question 8, compute consumer, producer, and social surpluses:

CS = $____________

PS = $____________

SS = $____________

Qd = _______________________.

Plot this new demand curve in the figure below. Label it D'.

Qs = _______________________.

Plot this new supply curve in the figure. Label the new supply curve S'.

13. After income falls to $1,100 and wages fall to $8, new equilibrium price and quantity are

PE = $__________ per square foot

QE = __________ square feet per month (in 1,000s)

90
80
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60
50
40
30
20
10
0	10	20	30	40	50	60	70	80	90	100	110	120	130	140	150	160

orangewolf175

ECO101H1 Lecture Notes - Lecture 5: Asteroid Family, Economic Surplus, Demand Curve

ECO101H1 Full Course Notes

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