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ECON 1900 Assignment 1 W13 ANSWERS-1.doc

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Thompson Rivers University
ECON 1900
Nancy Carson

ECON 1900 ANSWERS Assignment #1 Due Thurs. Feb7, 2013 ( /28) 1. The market for Widgets is illustrated in the diagram below. (16 marks) Price ($/unit) A) Label the equilibrium quantity and pric0 (Q and P0) on the diagram. 100 At this equilibrium, what is the total revenue received by producers? ____$40(600) = $24000 80 B) If the government would like to support the revenue of producers by introducing a price 60 S floor of $50 per unit and purchase the surplus at PF this price floor. What is the resulting quantity demanded by P040 consumers___500 units_________________. 20 What is the resulting quantity supplied by D producers ___800 units _____________. 0 200 400 QD600 800 1000 What quantity will the government have to Q 0 Q S purchase___300 units ______________. Widgets (units) What is the resulting consumers’ expenditure on widgets ____$50(500) = $25000_________ What is the resulting producer revenue from their total widget production__$50(800) = $40000___. What is the government’s expenditure on widgets? ______$50(300) = $15000____ . C) Now suppose that the government wishes to increase the total production and consumption Price ($/unit) of widgets to 800 units, what size per unit subsidy is necessary to increase the equilibrium00 quantity to 800 units? 80 _$30 per unit_______ Illustrate the effect of the subsidy on the graph to the right. Note that you 60 S could have shifted the demand curve up by $30 P P instead. What is the government’s expenditure on P040 the subsidy? __$30(800) = $24000________What S net of is the resulting Price paid by consumers?___$20__P 20 subsidy C With the subsidy, what price do the producers D receive per unit? __$50______ 0 200 800 1000 400 Q00 Q Widgets (units) 1 D) Now suppose that the government would like to increase the producers’ revenue as compared to part A) by using a quota system. The quota system defines a maximum quantity that each firm is allowed to Price ($/unit) supply so that the total quantity supplied to the market 100 does not exceed at 500 units. As a result of the quota S system the supply curve changes to the following as illustrated in the diagram to the right. What is the 80 resulting equilibrium price? 60 ______$50________ What is the total revenue of P producers? ____$50(500) = $25000__________ What is 40 the consumers total expenditure? ____$50(500) = $25000_ 20 D 2. Country A produces only two goods, X and Y.
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