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Problem Supply Demand and Policies

1. The price elasticity of demand for Tiny Tee-shirts is approximately -1.25. 2. The price elasticity of demand for dinner salads at Café Les Gourmands is -1.6. 3. The income elasticity of demand for gasoline is 0.5.

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64 views2 pages

Problem Supply Demand and Policies

1. The price elasticity of demand for Tiny Tee-shirts is approximately -1.25. 2. The price elasticity of demand for dinner salads at Café Les Gourmands is -1.6. 3. The income elasticity of demand for gasoline is 0.5.

Uploaded by

Tonny Nguyen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Microeconomics

Student name: ____________________________________________


1. If P = $12 for Tiny Tee-shirts, Q = 200, but if P 6. Refer to Figure, Suppose a $5 per-unit tax is
= $10, Q = 250. The price elasticity of demand imposed on the sellers of this good.
for Tiny Tee-shirts is approximately: 16

14

12

10

2. The quantity dinner salads demanded is 100


6
daily when Café Les Gourmands charges a
price of $1.80, but if price drops by $1.6, 4
quantity demanded is 150. The price
elasticity of demand for dinner salads at this 2

restaurant is:
0 2 4 6 8 10 12 14 16

a. What price will buyers pay for the good after the tax is
imposed?

3. If average income rises from $28,000 per b. What is the effective price that sellers will receive for
year to $30,000 per year and annual gasoline the good after the tax is imposed?
consumption per household rises from 1000
to 1400 gallons, the income elasticity of
demand for gas is:

c. How much is the burden of this tax on the buyers and


sellers in this market? Who will bear the greater
burden of the tax - the buyers, the sellers, or will the
burden be shared equally?

4. A vertical demand curve (if one existed)


would be ____________ _____________
throughout its entire range while a horizontal
demand curve is ____________
____________. d. How many units of this good will be sold after the tax
is imposed?

5. When John Whittler can sell totem poles for


$1,200 each, he markets 60 annually, but f. How much Dead weight loss caused by this policy?
when the price falls to $9s00 apiece, he is
willing to sell only 24 each year. His price
elasticity of supply is:
7. Suppose that demand in the market for good
X is given by the equation QD = 200-P, and c. If the government set a price ceiling at $40, would
that supply in the market for good X is given there be a shortage or surplus, and how large would
by the equation Qs=3P be the shortage/surplus and dead weight loss (if
a. What are the equilibrium price and quantity in the any)? What If price ceiling is $60?
market for good X

d. If the government set a price floor at $35, would there


b. Find the price elasticity of Demand and Supply at the be a shortage or surplus, and how large would be the
equilibrium price and quantity shortage/surplus and dead weight loss (if any)? What
if the price floor is $55

1. The following diagram shows the domestic 16


demand and domestic c supply curves in a
14
market. Assume that the world price in this
market is $3 per unit. Find the missing values 12
on the following table.
(domestic consumers demand, domestic producers 10
supply, imported/exported quantity, consumer
surplus, producer surplus, total surplus, and 8
deadweight loss?
6
a. Closed economy,
b. Free trade, 4
c. Tariff at $2 per unit
d. Quota 50 unit 2

0 2 4 6 8 10 12 14 16 18 20

Closed economy Free trade With tariff Quota

Price

Domestic demand

Domestic supply

Import quantity

Consumer surplus

Producer surplus

Tax revenue

Dead weight loss

Total surplus

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