Questions number 1, 2, 4 a and b. I do not understand? the supply function is Q$ = 4 + 4P, where P is theprice of wheat in dollars per bushel, and Q is theb. Could this program cost consumers (in termsquantity in billions of bushels. Find the free-marketwhat conditions? Illustrate with a diagram.beans as necessary to keep the price at $1 per pound.a. Suppose the demand function is QD = 28 – 2P andProgram. To see how the program worked, let's con-the equilibrium price and quantity, domestic riceweight loss from each policy. Which policy is therice. Illustrate with supply-and-demand diagramsa subsidy to farmers for each pound ofagricultural program called the Payment-in-KindJapanese government likely to prefer? Which policyproduction, government revenue or deficit, and dead-land and to their inability to take advantage of econo-mies of large-scale production. Analyze two policiesintended to maintain Japanese rice production: (1)In 1983, the Reagan administration introduced a newCHAPTER 9 •The Analysis of Competitive Markets 353cost consumers less than $50 million per year?Under what conditions? Again, use a diagram toillustrate.or (2) a per-pound tariff on importedproduced,6. In Exercise 4 in Chapter 2 (page 62), we examined avegetable fiber traded in a competitive world marketand imported into the United States at a world price of$9 per pound. U.S. domestic supply and demand forvarious price levels are shown in the following table.ricefarmers likely to prefer?are JapaneseU.S. SUPPLY(MILLION POUNDS)U.S. DEMAND(MILLION POUNDS)PRICE334sider the wheat market:6.289.6.22128.16equilibrium price and quantity.h Now suppose the government wants to lower thesupply of wheat by 25 percent from the free-marketequilibrium by paying farmers to withdraw landfrom production. However, the payment is made invwheat rather than in dollars-hence the name of the15101018124.Answer the following questions about the U.S. market:a. Confirm that the demand curve is given byQp = 40 – 2P, and that the supply curve is given byQs = 2/3P.b. Confirm that if there were no restrictions onThe wheat comes from vast governmentprogram.reserves accumulated from previous price supportprograms. The amount of wheat paid is equal tothe amount that could have been harvested on theland withdrawn from production. Farmers are freeto sell this wheat on the market. How much is nowproduced by farmers? How much is indirectly sup-plied to the market by the government? What is thenew market price? How much do farmers gain? Do%3Dtrade, the United States would import 16 millionpounds.c. If the United States imposes a tariff of $3 per pound,what will be the U.S. price and level of imports?How much revenue will the government earn fromthe tariff? How large is the deadweight loss?d. If the United States has no tariff but imposes animport quota of 8 million pounds, what will be theU.S. domestic price? What is the cost of this quotafor U.S. consumers of the fiber? What is the gain forU.S. producers?7. The United States currently imports all of its coffee.The annual demand for coffee by U.S. consumers isgiven by the demand curve Q = 250 – 10P, where Qis quantity (in millions of pounds) and P is the marketprice per pound of coffee. World producers can har-vest and ship coffee to U.S. distributors at a constantmarginal (= average) cost of $8 per pound. U.S. dis-tributors can in turn distribute coffee for a constant$2 per pound. The U.S. coffee market is competitive.Congress is considering a tariff on coffee imports of $2consumers gain or lose?C. Had the government not given the wheat back tothe farmers, it would have stored or destroyed it.Do taxpayers gain from the program? What poten-tial problems does the3. About 100 million pounds of jelly beans are consumedin the United States each year, and the price has beenabout 50 cents per pound. However, jelly bean produc-ers feel that their incomes are too low and have con-programcreate?iced the government that price supports are in order.he government will therefore buy up as many jellyper pound.a. If there is no tariff, how much do consumerspay for a pound of coffee? What is the quantitydemanded?b. If the tariff is imposed, how much will consumerspay for a pound of coffee? What is the quantityof lostconsumer surplus)more than $50 milliondemanded? QUESTIONS FOR REVIEW4.incomes. Why do price supports or acreage-limitatiprograms cost society more than simply giving famcertain good. Is it preferable to use an import quotapay most of it? What determines the share of a subsid6. Suppose the government wants to increase farme8. The burden of a tax is shared by producers and con9. Why does a tax create a deadweight loss? What dete2. Suppose the market for widgets can be described b1. What is meant by deadweight loss? Why does a priceceiling usually result in a deadweight loss?2. Suppose the supply curve for a good is completelyinelastic. If the government imposed a price ceilingbelow the market-clearing level, would a deadweightloss result? Explain.3. How can a price ceiling make consumers better off?Under what conditions might it make them worse off?4. Suppose the government regulates the price of a goodto be no lower than some minimum level. Can such aminimum price make producers as a whole worse off?Explain.5. How are production limits used in practice to raise theprices of the following goods or services: (a) taxi rides,(b) drinks in a restaurant or bar, (c) wheat or corn?ers money?7. Suppose the government wants to limitimports ofa tariff? Why?consumerssumers. Under what conditions willproducemost of the tax? Under what conditions willthat benefits consumers?mines the size of this loss?EXERCISES1. From time to time, Congress has raised the minimumwage. Some people suggested that a government sub-sidy could help employers finance the higher wage.This exercise examines the economics of a minimumthe following equations:Demand:P = 10 - Qwage and wage subsidies. Suppose the supply of low-skilled labor is given bySupply: P =Q- 4where P is the price in dollars per unit and Q is thequantity in thousands of units. Then:a. What is the equilibrium price and quantity?b. Suppose the government imposes a tax of $1 paunit to reduce widget consumption and raise gov-ernment revenues. What will the new equilibriumquantity be? What price will the buyer pay? Whaamount per unit will the seller receive?Suppose the government has a change of heartabout the importance of widgets to the happinesof the American public. The tax is removed and asubsidy of $1 per unit granted to widget producersWhat will the equilibrium quantity be? What pricewill the buyer pay? What amount per unit (includ-ing the subsidy) will the seller receive? What wilbe the total cost to the government?3. Japanese rice producers have extremely high production costs, due in part to the high opportunity costeL = 10wwhere LS is the quantity of low-skilled labor (inmillions of persons employed each year), and w is thewage rate (in dollars per hour). The demand for laboris given byLD= 80 - 10wс.a. What will be the free-market wage rate andemployment level? Suppose the government sets aminimum wage of $5would then be employed?b. Suppose that instead of a minimum wage, the govern-ment pays a subsidy of $1 per hour for each employee.What will the total level of employment be now?What will the equilibrium wage rate be?perhour. How many people

Deadweight loss refers to the loss to society which results due to an imperfect market where demand…

Answered: EW . What is meant by deadweight loss?…

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EW . What is meant by deadweight loss? Why does a price ceiling usually result in a deadweight loss? Suppose the suppli

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Publisher:NEWNAN

Chapter1: Making Economics Decisions

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