2. There is concern that CFCs, a chemical by-product of refrigeration, are destroying Earth's protective ozone layer, leaving us more vulnerable to cataracts and skin cancer. Suppose each air conditioner creates 10 pounds of CFCs. The demand and supply of air conditioners follow: Price (dollars) Quantity demanded Quantity supplied 400 10 18 350 12 16 300 14 14 250 16 200 18 12 10 2.1 What will be the free market price and quantity? 2.2 What will be the price and quantity if the government forces suppliers to pay a $100 tax for each air conditioner produced? 2.3 Show the deadweight loss (DWL) resulting from the tax in the graph. The graph needs to indicate the demand curve, supply curves (before and after tax), and DWL (in a triangle) on the price-quantity coordinate.
2. There is concern that CFCs, a chemical by-product of refrigeration, are destroying Earth's protective ozone layer, leaving us more vulnerable to cataracts and skin cancer. Suppose each air conditioner creates 10 pounds of CFCs. The demand and supply of air conditioners follow: Price (dollars) Quantity demanded Quantity supplied 400 10 18 350 12 16 300 14 14 250 16 200 18 12 10 2.1 What will be the free market price and quantity? 2.2 What will be the price and quantity if the government forces suppliers to pay a $100 tax for each air conditioner produced? 2.3 Show the deadweight loss (DWL) resulting from the tax in the graph. The graph needs to indicate the demand curve, supply curves (before and after tax), and DWL (in a triangle) on the price-quantity coordinate.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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