Calculate the consumer surplus, the producer surplus, and the deadweight loss.

Question

EC 308 Intermediate Microeconomics

Instructor: Kent O. Zirlott

HOMEWORK ASSIGNMENT # 4

Due: Monday October 26th 2015

Total Possible Points: 20

  1. Consider the market
    for DVD players. Let the market
    demand and supply curves be given as follows:

Demand: P = 90
– 2Q

Supply: P = 3Q

    1. Under the
      assumption of a competitive market, what are the equilibrium price and
      quantity?
    2. Now, assume the
      government imposes a price ceiling of $30. How many DVD players are
      demanded and supplied at this price? Was a shortage created by this price
      ceiling and, if so, how much is it?
    3. Calculate the
      price (PEX) that would eliminate the shortage from the
      market.
    4. Calculate the
      consumer surplus, the producer surplus, and the deadweight loss.
    5. Create a graph of
      this market. Note clearly on the
      graph the equilibrium quantity and price, the quantity demanded and the
      quantity supplied under the price ceiling, the shortage, the price that
      would eliminate the shortage from the market (PEX), the
      producer and consumer surpluses, and the deadweight loss.
  1. Assume the market demand curve for U.S.
    automobiles is P = 15000-50Q and the supply curve is P = 50Q, where P is
    the price of automobiles and Q is the quantity of automobiles.

    1. What is the equilibrium price and quantity for
      the U.S.
      automobile market if there was no trade?
    2. Now if the U.S. imports automobiles at a
      price of $5,000, how many automobiles will be produced domestically, how
      many will be consumed domestically, and how many will be imported?
    3. Now suppose the U.S. government places a $1000
      tariff on each imported automobile, how many will now be consumed
      domestically, how many will be produced domestically, and how many will
      be imported?
    4. Calculate the amount of the tax revenue to the U.S.
      government.
    5. Calculate the amount of the deadweight loss.
    6. Create a graph of this market. Note clearly on the graph the
      equilibrium quantity and price if there was no trade, the quantity
      produced and consumed domestically and the amount imported under the
      world price, the quantity produced and consumed domestically and the
      amount imported under the tariff, the tax revenue generated from the
      tariff, and the deadweight loss created by the tariff.

Please label your graphs thoroughly otherwise points
will be deducted and show all your work including calculations. Also, the assignment is due in class on
Monday and late homework will not be accepted.

EC 308 Intermediate Microeconomics


 

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