**Principles of Microeconomics Prof. Pinyuan Dong Due October 12, 2022****Problem Set 2****A.** Suppose the demand and supply for the market of cigarettes in a city is given by $ Q_D = 400 - 50P $, $ Q_S = 50P $.1. **Graph the demand and supply curves.** What is the market equilibrium price and quantity?2. The city council wants to discourage smoking. If the socially optimal demand for cigarettes is $ Q_D = 200 - 50P $, what can the city council do to achieve the socially optimal demand?3. What is the quantity of cigarette sold after the government takes appropriate actions? How much do consumers pay and how much do producers get? Is the government action effective in its objective of discouraging cigarette consumption?**B.** Suppose the local gas station in a small town sells regular gasoline at $4/gallon. The gas station sells 100 gallons in a day. Due to global gas prices, it increased the price to $5/gallon. The next day, the gas station is only selling 90 gallons a day.1. Using these two points, calculate the price elasticity of demand of gasoline in this town when price increases from $4 to $5. Is the demand for gasoline elastic or inelastic?2. Describe, in words, the meaning of the particular value of elasticity of demand you calculated in the last question.3. Find the total revenue of the gas station before and after the price hike (hint: total revenue = $ P \times Q $). Is the gas station making more money?4. After some time has passed, however, the gas station is only selling 70 gallons of gas in a day at $5. Why is this happening? (hint: how does time impact elasticity)5. Find the price elasticity of demand of gasoline in this town in the long run. Is the demand for gasoline elastic or inelastic?6. Find the total revenue of the gas station in the long run. How does this compare to its initial revenue before the price hike?7. What do your answers from previous parts tell you about the relationship between price elasticity of demand and total revenue?**C.** Suppose the demand and supply for the market of beer is characterized by $ P = \frac{1}{20}Q_S $, $ P = -\frac{1 ### Text Transcription: Economic Analysis of Taxation#### Questions:3. If the government imposes a $3 tax, what is the price that consumers pay? How much do producers get? What is the quantity sold? How much tax burden do consumers and producers bear respectively?4. Based on your answer from part 3, who is relatively more price elastic in this market? Consumers or producers?5. What is the consumer surplus, producer surplus, and total surplus in the market after tax?6. What is the tax revenue and deadweight loss? Label them in the graph.#### Scenario Analysis:D. Suppose the demand and supply for a bottle of Knob Creek Bourbon whiskey is given by \( Q_D = 45 - \frac{1}{4}P $, $ Q_S = \frac{1}{2}P $.1. Calculate the market equilibrium price and quantity for this whiskey.2. Suppose a per-unit tax is imposed that reduces the quantity of this whiskey bought and sold in the market to 25 bottles. What is the size of the tax?3. What is the price that consumers pay? How much do producers get?4. How much tax burden do consumers and producers each bear? Who is relatively more price elastic in this market? Consumers or producers?5. Why does it make sense for the government to tax liquor? What are the economic and social benefits of this tax? *Hint: Think in terms of public health, elasticity, social impact, and tax revenue.*#### Elasticity and Market Welfare:E. Considering the following figure, what do the two demand and supply graphs tell you about how elasticity affects the impact of taxation on market welfare?---### Graph Explanation:- **Panel (a) and Panel (b): Demand and Supply Curves** Both panels illustrate demand and supply curves with different slopes, indicating different elasticities.- **Axes**: Each graph shows "Price" on the vertical axis and "Quantity" on the horizontal axis.- **Equilibrium Points**: The intersection of demand and supply curves signifies the equilibrium price and quantity. - **Tax Impact**: - Both panels include a vertical distance between the supply and demand curves representing the imposed tax. - Following the introduction of a tax, you can observe shifts in equilibrium prices and quantities.- **Elasticity Influence**: - The steeper slope in demand or supply curves suggests inelastic behavior, meaning less change

Disclaimer:- since you asked multiple questions we are solving the 1st questions as per guidelines.…

A. Suppose the demand and supply for the market of cigarettes in a city is given by QD = 400-50P, Qs = 50P. 1. Graph the demand and supply curves. What is the market equilibrium price and quantity? 2. The city council wants to discourage smoking. If the socially optimal demand for cigarettes is QD 200-50P, what can the city council do to achieve the socially optimal demand? 3. What is the quantity of cigarette sold after the government takes appropriate actions? How much do consumers pay and how much do producers get? Is the government action effective in its objective of discouraging cigarette consumption?

A. Suppose the demand and supply for the market of cigarettes in a city is given by QD = 400-50P, Qs = 50P. 1. Graph the demand and supply curves. What is the market equilibrium price and quantity? 2. The city council wants to discourage smoking. If the socially optimal demand for cigarettes is QD 200-50P, what can the city council do to achieve the socially optimal demand? 3. What is the quantity of cigarette sold after the government takes appropriate actions? How much do consumers pay and how much do producers get? Is the government action effective in its objective of discouraging cigarette consumption?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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