3250:200 Lecture Notes - Lecture 8: Deadweight Loss, Market Distortion, Root Mean Square

40 views3 pages

rosehound821

16 Nov 2017

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Ps = d +e + f tax revenue = 0 total surplus = cs + ps = a + b + c + d + e + f with the tax : cs = a. Ps = f tax revenue = b + d total surplus = a + b + d + f tax reduces total surplus by = c + e. C + e is called the deadweight loss (dwl) of the tax, the fall in total surplus that results from a market distortion. When supply is inelastic, it"s harder for rms to leave the market when the tax reduces ps. So the tax only reduces q a little (small distortion), and dwl is small. The more elastic the supply, the easier for rms to leave the market when the tax reduces ps. The longer the list, the more elastic it is. A bigger government provides more services, but requires higher taxes, which case dwls.

Related Questions

1) Taxing a monopoly (20 Points) Suppose that a monopolist sells a product to consumers with an aggregate demand that is downward sloping in quantity, D(Q) = 200 â 2Q. The total cost of producing Q units is C(Q) = 20Q + 2Q2 .

a) Identify the unregulated equilibrium (P â , Qâ )

b) What are the consumer and producer surpluses (CS and PS) and total welfare (W) at this equilibrium?

c) Suppose that a specific tax of Ï = 20 is imposed on each unit. i. What price-quantity pair (P 1 , Q1 ) would we expect? ii. What are CS, PS, tax revenue (T), and W? iii. What is deadweight loss?

d) Instead of a specific tax, an ad valorem tax, Î± = 16 is imposed i. What price-quantity pair (P 2 , Q2 ) would we expect? ii. What are CS, PS, T, and W? iii. What is deadweight loss?

e) Welfare distribution i. Which scenario results in the highest producer surplus? ii. Which scenario results in the greatest gains for consumers, assuming that all tax revenues are perfectly redistributed to consumers only.

scarletbadger532

Consider a market where demand is: P = 6 - Q and supply is S: P = Q.

1)Equilibrium quantity Qe is

a)2

b)3

c)4

d)5

2)Equilibrium price Pe is

a)$2

b)$3

c)$4

d)$5

3)Consumer surplus CS is

a)$0.5

b)$4.5

c)$12.5

d)$16.5

4)Producer surplus PS is

a)$0.5

b)$4.5

c)$12.5

d)$16.5

5)Total surplus TS is

a)$5

b)$7

c)$8

d)$9

6)Construct a budget-neutral subsidy in the above market.

Quantity Qâ is

a)2

b)3

c)4

d)5

7)Post-subsidy producer price Pp is

a)$2

b)$3

c)$4

d)$5

8)Consumer surplus CS is

a)$0.5

b)$4.5

c)$12.5

d)$16.5

9)Producer surplus PS is

a)$0.5

b)$4.5

c)$12.5

d)$16.5

10)Total surplus TS is (do not forget to account for the subsidy expenditure SE)

a)$5

b)$7

c)$8

d)$9

champagnecod279

Last year, Berkeley, CA passed a tax on yoga classes of $4 per yoga class. Suppose that the pre-taxdemand for yoga classes is QD = 2000 â 100P, and that the pre-tax supply of yoga classes is QS = 300P â200.
(a) Calculate the initial equilibrium price and quantity.

(b) Calculate the elasticity of demand (ED) and elasticity of supply (ES) using calculus at the initialequilibrium price and quantity from Part (a).

(d) Use your answer from Part (b) to calculate the tax borne by firms, as a percentage of the overall tax.

(e) Determine the price that buyers will pay for yoga classes after the tax (PB). Determine the price thatfirms will receive for yoga classes after the tax (PS).

(f) Calculate the deadweight loss (DWL) associated with this tax.

yellowswan396

3250:200 Lecture Notes - Lecture 8: Deadweight Loss, Market Distortion, Root Mean Square

Document Summary

Get access

Related Documents

3250:200 Lecture Notes - Lecture 7: Economic Surplus, Planned Economy, Laissez-Faire

3250:200 Lecture Notes - Lecture 12: Deadweight Loss, Progressive Tax, Tax Deduction

3250:200 Lecture Notes - Lecture 10: Economic Surplus, Ecotax, Demand Curve

Related Questions