PS6(Ch6+Ch8)

Problem Set (Ch6):

Quick Check Multiple Choice: ALL
Problem and Applications: Q3, Q4, Q7, Q8, Q10

Problem Set (Ch8):

Quick Check Multiple Choice: ALL
Problem and Applications: Q2, Q4, Q5, Q7, Q8
Ch6

Quick Check Multiple Choice:

1.d
2.c
3.a
4.a
5.d
6.d

Problem and Applications: Q3, Q4, Q7, Q8, Q10

Q3.
a.
The equilibrium price is $8
The equilibrium quantity is 6
b.
the new market price is $10 and 2 Frisbees are sold.
c.
The new market price is $8 and 6 Frisbees are sold.

Q4.
a.

The price paid by consumers is the same as the price received by

producers.
b.

the price paid by consumers is $2 much than the price received by

producers.
The quantity of beer sold is decreased.

Q7.
a.
imposing this tax on either producers or consumers will give the same
effect on reducing the use of gasoline.
b.

the tax will be more effective on reducing the quantity of gasoline

consumed as greater elasticity of demand means the quantity of
demanded falls more in response to the rise in the price of gasoline.
c.
they are neither helped or hurt by this tax as their demand on gasoline is
elastic so they can easily leave the market.
d.
they are hurt by this tax as the supply of gasoline is relatively inelastic so
they have to bear greater portion of the tax.

Q8
a.

b.
the quantity of employment will decrease.
The employment depends on the elasticity of demand as the quantity of
supply is greater than the quantity of demand above the
makret equilibrium.
c.
the quantity of unemployment will increase.
It depends on both elasticities.
d.
the total wage payment will increase.
This change will not happen for unskilled labor when the demand is
elastic.

Q10.
a.

effective price paid by consumers: $2.25

effective price received by sellers: $2.75
quantity of cones sold: 11
b.
The consumers and producers do gain from this policy
While the government lose.

Ch8
Quick Check Multiple Choice:
1.a
2.b
3.c
4.a
5.b
6.a

Problem and Applications: Q2, Q4, Q5, Q7, Q8

Q2.
a.
I dont agree as in the case of either supply or demand is perfectly
inelastic, there is no deadweight loss when implementing tax and it
can still rise the revenue of the government.
b.
I dont agree as in the case of implementing 100% tax on the sellers will
drop the quantity of supply to zero so therefore it raises no revenue.

Q4.
a.
No, as the demand and supply will be much elastic in long term than in
short term, the deadweight loss will be greater in longer period of
time.
b.
Yes, as the demand and supply will be less elastic in short term than in
long term, the quantity will decline in less amount in respond to the
rise in tax so the revenue will be greater than that in longer period
of time.

Q5.
When the supply and demand is inelastic, taxing food can achieve the
minimum deadweight loss which can effectively raise the revenue
so it is a good way. But from the social equality perspective, taxing
food will harm the poor much than the rich as the demand of food of
the poor is much inelastic than that of the rich therefore it is not a
good way to raise the revenue.

Q7.
a.
the total spending by consumers increases,
the total revenue of producers decreases,
the revenue of government increases
b.
the price received by producers fall.
As the quantity of goods sold in the market fall also, the total receipts for
producers fall too.

c.
the price paid by consumers rise, as the demand is less elastic than the
supply, so the fall in the quantity is greater than the rise in the
price, therefore the total receipts for producers fall. As the rise in
price will reduce quantity, the consumer surplus will fall.

Q8.
The subsidy increase both the consumer surplus and producer surplus and
the total surplus.
The tax revenue is reduced as the government need to spend extra
money.
The subsidy leads to $2 of deadweight loss.