8. Consider the market for the Mona Lisa painting given by the following demand and supply curves: D: P = 1000-500⁰ and S: Q=1 a. Draw the market for Mona Lisa paintings below. Label graph and axes. Price Qs 1000 a. 950 e. CS PS Qd 20 Quantity b. Calculate the equilibrium price and quantity of Mona Lisa paintings. Label P* and Q* on your graph from part (Q*, P*) 1 P = 1000-50(1) = 950 C. Calculate consumer surplus and producer surplus. Label these (CS and PS) on your graph from part a. CS=0.5x (1000-950) x 1 = 0.5 x 50 = $25 PS = $950 x 1 = $950 Suppose the French government imposed a $300 tax on buyers of Mona Lisa paintings. d. On the following graph, show the effect of the tax. Clearly label PBUYER PSELLER P, Q, QTAY CSTAX PSTAX the tax revenue (TR), and DWL. (Here CSTAX PSTAX refer to consumer and producer surplus after the tax is imposed.) Calculate consumer surplus (CSTAx), producer surplus (PSTAX). deadweight loss (DWL), and the total tax revenue (TR) under the new tax. f. Is the tax outcome efficient? Why or why not? I g. What percentage of the tax burden is on the consumers, and what percentage is on the producers? Why? h. What effect does the tax have on consumer surplus (CS)? (hint-compare your CS from before and after the tax).
8. Consider the market for the Mona Lisa painting given by the following demand and supply curves: D: P = 1000-500⁰ and S: Q=1 a. Draw the market for Mona Lisa paintings below. Label graph and axes. Price Qs 1000 a. 950 e. CS PS Qd 20 Quantity b. Calculate the equilibrium price and quantity of Mona Lisa paintings. Label P* and Q* on your graph from part (Q*, P*) 1 P = 1000-50(1) = 950 C. Calculate consumer surplus and producer surplus. Label these (CS and PS) on your graph from part a. CS=0.5x (1000-950) x 1 = 0.5 x 50 = $25 PS = $950 x 1 = $950 Suppose the French government imposed a $300 tax on buyers of Mona Lisa paintings. d. On the following graph, show the effect of the tax. Clearly label PBUYER PSELLER P, Q, QTAY CSTAX PSTAX the tax revenue (TR), and DWL. (Here CSTAX PSTAX refer to consumer and producer surplus after the tax is imposed.) Calculate consumer surplus (CSTAx), producer surplus (PSTAX). deadweight loss (DWL), and the total tax revenue (TR) under the new tax. f. Is the tax outcome efficient? Why or why not? I g. What percentage of the tax burden is on the consumers, and what percentage is on the producers? Why? h. What effect does the tax have on consumer surplus (CS)? (hint-compare your CS from before and after the tax).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Based on the answers to a-c, calculate d-h.
Transcribed Image Text:8. Consider the market for the Mona Lisa painting given by the following demand and supply curves: D: P = 1000-500⁰
and S: Q=1
a. Draw the market for Mona Lisa paintings below. Label graph and axes.
Price
1000
a.
950
e.
CS
PS
Qs
Qd
20
Quantity
b. Calculate the equilibrium price and quantity of Mona Lisa paintings. Label P* and Q* on your graph from part
(Q*, P*)
1
P* = 1000-50(1)
= 950
C. Calculate consumer surplus and producer surplus. Label these (CS and PS) on your graph from part a.
CS=0.5x (1000-950) x 1
= 0.5 x 50
= $25
PS = $950 x 1
= $950
Suppose the French government imposed a $300 tax on buyers of Mona Lisa paintings.
d. On the following graph, show the effect of the tax. Clearly label PBUYER PSELLER P, Q, QTAX CSTAX PSTAX, the tax
revenue (TR), and DWL. (Here CSTAX, PSTAX refer to consumer and producer surplus after the tax is imposed.)
Calculate consumer surplus (CSTA), producer surplus (PSTAX), deadweight loss (DWL), and the total tax
revenue (TR) under the new tax.
f. Is the tax outcome efficient? Why or why not?
I
g. What percentage of the tax burden is on the consumers, and what percentage is on the producers? Why?
h. What effect does the tax have on consumer surplus (CS)? (hint - compare your CS from before and after the
tax).
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