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s the number of tulips demande- P, is the price received by tulip s is no government intervention i quantity, as well as both the proc

s the number of tulips demande- P, is the price received by tulip s is no government intervention i quantity, as well as both the proc

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Please Answer Part "b" only

In the country of Econland, there is a big market for tulips. The demand for tulips can be expressed by Qd = 15000 – 1250Pa, where Pa is the price paid by consumers for a tulip and Qa is the number of tulips demanded; the supply curve is Q, = 1700P, – 3400, where P, is the price received by tulip suppliers and Q, is the number of tulips supplied. (a) Initially, there is no government intervention in the tulip market. Find the equilibrium price and quantity, as well as both the producer and consumer surpluses. (b) The government is eager to increase its revenue, and has set its sights on the tulip market. It decides to impose an excise tax on tulips: from now on, for every tulip suppliers sell, they must pay the government $1. Given this, find the price con- sumers will pay, the price suppliers will receive, and the quantity sold. What is the consumer surplus? What is the producer surplus? What is the change to government revenue? Is there deadweight loss due to the tax, and if so how large is it? (c) Unsurprisingly, the government's tulip tax was unpopular with consumers. In response, the government has decided to get rid of the tax. In its place, they im- pose a price ceiling on tulips equal to $5. Assume rationing is as efficient as possible (meaning the consumers with the highest willingness to pay are able to buy tulips). Given this, how many tulips will be supplied? What is the consumer surplus? What is the producer surplus? Is there deadweight loss due to the price ceiling, and if so how large is it? (d) Assume now that rationing is as inefficient as possible (meaning that, among consumers willing to buy at the price level, only those with the lowest willingness to pay are able to buy tulips). What is consumer surplus now? What is the size of the deadweight loss?
Transcribed Image Text:In the country of Econland, there is a big market for tulips. The demand for tulips can be expressed by Qd = 15000 – 1250Pa, where Pa is the price paid by consumers for a tulip and Qa is the number of tulips demanded; the supply curve is Q, = 1700P, – 3400, where P, is the price received by tulip suppliers and Q, is the number of tulips supplied. (a) Initially, there is no government intervention in the tulip market. Find the equilibrium price and quantity, as well as both the producer and consumer surpluses. (b) The government is eager to increase its revenue, and has set its sights on the tulip market. It decides to impose an excise tax on tulips: from now on, for every tulip suppliers sell, they must pay the government $1. Given this, find the price con- sumers will pay, the price suppliers will receive, and the quantity sold. What is the consumer surplus? What is the producer surplus? What is the change to government revenue? Is there deadweight loss due to the tax, and if so how large is it? (c) Unsurprisingly, the government's tulip tax was unpopular with consumers. In response, the government has decided to get rid of the tax. In its place, they im- pose a price ceiling on tulips equal to $5. Assume rationing is as efficient as possible (meaning the consumers with the highest willingness to pay are able to buy tulips). Given this, how many tulips will be supplied? What is the consumer surplus? What is the producer surplus? Is there deadweight loss due to the price ceiling, and if so how large is it? (d) Assume now that rationing is as inefficient as possible (meaning that, among consumers willing to buy at the price level, only those with the lowest willingness to pay are able to buy tulips). What is consumer surplus now? What is the size of the deadweight loss?
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