Question ONESuppose the Zambian legislature passes a law requiring that 1 billion Kwacha a year be raised viatwo new taxes, one on good X and another on good Y, but leaves the choice up to the FinanceMinister on what rates to choose for tx and ty. Suppose that these goods are produced bycompetitive industries at constant marginal cost and suppose the demand and supply curves are foreach kind of good are known, and the goods are neither complements nor substitutes.(a) How should the governor choose the various tax rates to minimize the total excess burdenraised by the new taxes?[10 Marks](b) Finally, suppose that demand for good X is less elastic than demand for good Y. Does thatmean the tax rate on X will be higher or lower?[7.5 Marks](c) If the reason X demand is less elastic is that richer people consume more X and they canafford the extra taxes, does this undermine or enhance the case for the tax scheme youproposed?[7.5 Marks]

(a) The governor should fix the tax rates on items X and Y so that the tax burden is heavier on the…

Answered: Question ONE Suppose the Zambian…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.8P

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In mid-2010, Saudi Arabia and Venezuela (both members of OPEC)produced an average of 8 million and 3 million barrels of oil a day,respectively. Production costs were about $20 per barrel, and the price ofoil averaged $80 per barrel. Each country had the capacity to producean extra 1 million barrels per day. At that time, it was estimated that each1-million-barrel increase in supply would depress the average price of oilby $10.a. Fill in the missing profit entries in the payoff table.b. What actions should each country take and why?Venezuela3 M barrels 4 M barrels8 M barrels _____, _____ _____, _____ Saudi Arabia9 M barrels _____, _____ _____, _____c10GameTheoryandCompetitiveStrategy.qxd 9/29/11 1:33 PM Page 430Summary 431c. Does the asymmetry in the countries’ sizes cause them to take differentattitudes toward expanding output? Explain why or why not. Commenton whether or not a prisoner’s dilemma is present.
Suppose that a producer in a previously competitive market is granted the sole right to producein the market. Given that demand in the marketis unchanged but now all consumers must purchase from the same producer, why might the newmonopolist produce less than the quantity thatwas produced when the market was competitive?
Which of the following characteristics is required if a good is to be efficiently provided by profit-seeking firms? O The good should be excludable and rival in consumption. The good should be a consumer good. The good should not be an inferior good. The good should be subject to the free rider problem.
Which of the following describes the type of entry barrier faced for electricity transmission? A. There is a created entry barrier for electricity transmission because it is cheaper to have only one set of power lines serving a given region. B. There is a created entry barrier for electricity transmission because entry into the market has been limited by the economies of scale. °C. There is a natural entry barrier for electricity transmission because it is cheaper to have only one set of power lines serving a given region. O D. There is a natural entry barrier for electricity transmission because entry into the market has been limited by government restriction. Which of the following describes the type of entry barrier faced for municipal sewage services? A. There is a natural entry barrier for municipal sewage services because it is cheaper to have only one sewer system serving a given region. B. There is a natural entry barrier for municipal sewage services because entry into the…
Table 2 Imagine a small town in which only two residents, Lisa and Mark, own wells th Time left 1:57 drinking water. Each week Lisa and Mark work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Lisa and Mark can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: Quantity (in gallons) 0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 Price Select one: O a. 0 O b. 1,200 O c. 600 O d. 900 $120 110 100 90 80 70 60 50 40 30 20 10 0 Total Revenue (and Total Profit) $0 11,000 20,000 27,000 32,000 35,000 36,000 35,000 32,000 27,000 20,000 11,000 0 Refer to Table 2. If the market for water were perfectly competitive instead of monopolistic, how many gallo of water would be produced and sold?
how do we answer these?
Most of the world’s governments have struggledto handle the issue of allowing consumption of forbiddengoods, such as alcohol, cigarette, tobacco etc. to its population. Various methods of control have been exercised world over, such as, complete ban on these goods, a restricted consumption regime with quota on consumption or quota on selling, price floorskeeping the price of these goods high up in order to reduce demand and imposing high taxes to generate same effect. None of thee seem to have worked to control the availability and consumption of such goods by the society. These are called social bads, asthey not only are harmful for the personconsuming them, there are external effects on others, such as family and friends and the larger society.In Rampur, Alcoholare forbidden, so people trade Alcohol bottlesin a black market. The Alcoholdemand is QD = 12 − P , and the supply is Qs = 2P(a)Find the equilibrium price and quantity in the black market. (b) The government becomes aware of…
Table 2 Imagine a small town in which only two residents, Lisa and Mark, own wells that produce sa drinking water. Each week Lisa and Mark work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the Time left 1:5 bear. To keep things simple, suppose that Lisa and Mark can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: Quantity (in gallons) 0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 Select one: Price O a. $60 O b. $20 O c. $40 O d. $70 $120 110 100 90 80 70 60 50 40 30 20 10 0 Refer to Table 2. If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, what price will they charge? Total Revenue (and Total Profit) $0 11,000 20,000 27,000 32,000 35,000 36,000 35,000 32,000 27,000 20,000 11,000 0
Consider the profit getting from selling x and y units of two commodities isgiven by as follows: i. P(x, y) = −0.1x2 - 0.2xy - 0.2y2 + 47x + 48y - 600. Find out theproduction levels for x and y that maximizes the profit. ii. Now assume that the total production is limited to 200 units. Find out theproduction levels that maximizes the profits.
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Suppose Biwei is the only consumer in the apple market, why is his marginal use value equal to the apple price? Calculate his consumer surplus (net gain from consumption) and fill in the table. How many apples he would like to buy per week?
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