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2) Explain the difference between a subsidy and a tax.

2) Explain the difference between a subsidy and a tax.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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1) Explain the difference between a per unit tax and a lump sum tax: 2) Explain the difference between a subsidy and a tax. 3) Show (graphically) what impact a per unit tax would have on a monopoly. What would happen to the firms price and quantity if a per unit tax was used. 4) Show (graphically) what impact a lump sum tax would have on a monopoly. Would the firm's price and quantity change? Would the firm's profit change after the use of the tax? 5) Show (graphically) what impact a per unit subsidy would have on a monopoly. What would happen to the firms price and quantity if a per unit subsidy was used. 6) Show a monopoly graph and show the elastic and inelastic zones are of the firm's demand curve. (You don't have to show anything but P=AR=D and MR on this graph). 7) Sometimes the government feels that they need to regulate a monopoly. They might try to tax the monopoly (which probably wouldn't work well) or they may decide to split the monopoly firm into two different competing businesses. Another idea would be to tell the monopoly that they can only earn a "fair return." Show what a fair return would look like graphically for the monopoly. 8) Show a monopoly graph and show the area of consumer surplus, producer surplus and deadweight loss. If a lump sum tax was used on the monopoly would the area of consumer surplus, producer surplus or deadweight loss change?
Transcribed Image Text:1) Explain the difference between a per unit tax and a lump sum tax: 2) Explain the difference between a subsidy and a tax. 3) Show (graphically) what impact a per unit tax would have on a monopoly. What would happen to the firms price and quantity if a per unit tax was used. 4) Show (graphically) what impact a lump sum tax would have on a monopoly. Would the firm's price and quantity change? Would the firm's profit change after the use of the tax? 5) Show (graphically) what impact a per unit subsidy would have on a monopoly. What would happen to the firms price and quantity if a per unit subsidy was used. 6) Show a monopoly graph and show the elastic and inelastic zones are of the firm's demand curve. (You don't have to show anything but P=AR=D and MR on this graph). 7) Sometimes the government feels that they need to regulate a monopoly. They might try to tax the monopoly (which probably wouldn't work well) or they may decide to split the monopoly firm into two different competing businesses. Another idea would be to tell the monopoly that they can only earn a "fair return." Show what a fair return would look like graphically for the monopoly. 8) Show a monopoly graph and show the area of consumer surplus, producer surplus and deadweight loss. If a lump sum tax was used on the monopoly would the area of consumer surplus, producer surplus or deadweight loss change?
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