Economics: Price Floors, Taxes, and Market Equilibrium, Exámenes de Economía

¡Descarga Economics: Price Floors, Taxes, and Market Equilibrium y más Exámenes en PDF de Economía solo en Docsity! 1. The government has decided that the free market price of cheese is too low. a) Suppose the government imposes a binding price floor in the cheese market. Use a supply and demand diagram to show the effect of this policy on the price of cheese and the quantity of cheese sold. Is there a shortage or surplus of cheese? b) Farmers complain that the price floor has reduced their total revenue. Is this possible? Explain. c) In response to farmers’ complaints, the government agrees to purchase all of the surplus cheese at the price floor. Compared to the basic price floor, who benefits from this new policy? Who loses? (Exercise 2, page 127, Mankiw and Taylor) 2. Adam Smith's "invisible hand" concept suggests that a competitive market outcome both maximizes total surplus and generates equality among the members of society 3. According to the Coase theorem, an externality always requires government intervention in order to internalize the externality. 4. The demand and supply of a good X can be written in the following way: Xd=100-2Px Xs=(Px-tax)-10 Where tax is a tax government imposes on the sale per unit of good X. a) Calculate the equilibrium price and the equilibrium quantity when there is no tax. b) Calculate the equilibrium price when a tax of 3€ per unit of good X is imposed. c) Obtain the price paid by the buyers, the price received by the sellers after the tax. d) Calculate how the tax burden is divided between the buyers and the sellers. 5. Market for good j (inferior good) is in equilibrium. Explain how price and quantity will change if: a. There is a rise in the price of a complementary good. b. The price of a substitutive good falls. c. Income falls. d. There is a rise in the price of the raw materials. 6. In the market for good x, the demand equation is xd = 11-px and the supply equation is xs = -1+px where xd and xs are respectively the quantities demanded and supplied and px is the price of good x. a) Represent graphically these two equations. b) Find out the equilibrium price and quantity. c) Calculate the consumers, producers and total market surplus.