The demand and supply in the market for textbooks are described by the following equations: Q D = 200 - P QS = 2P 40 - The government is considering a unit tax of 30 dollars on textbooks. (a) Draw a supply and demand diagram. Label on your diagram the following: The free-market equilibrium price P * and quantity Q* . The quantity bought and sold with the tax in place QT The deadweight loss, as a shaded area (b) Find a numerical value for the deadweight loss caused by the tax. The government scraps the plan for a tax and instead proposes a 50-dollar price ceiling on textbooks. (c) Draw a supply and demand diagram. Label on your diagram the following: The free-market equilibrium price P * and quantity Q* . The quantity demanded with the price ceiling in place QD The quantity supplied with the price ceiling in place QS The consumer surplus with the price ceiling in place, as a shaded area (d) Are consumers better off with the price ceiling in place? Justify your answer by calculating the change in consumer surplus when the price ceiling takes effect.

The demand and supply in the market for textbooks are described by the following equations: Q D = 200 - P QS = 2P 40 - The government is considering a unit tax of 30 dollars on textbooks. (a) Draw a supply and demand diagram. Label on your diagram the following: The free-market equilibrium price P * and quantity Q* . The quantity bought and sold with the tax in place QT The deadweight loss, as a shaded area (b) Find a numerical value for the deadweight loss caused by the tax. The government scraps the plan for a tax and instead proposes a 50-dollar price ceiling on textbooks. (c) Draw a supply and demand diagram. Label on your diagram the following: The free-market equilibrium price P * and quantity Q* . The quantity demanded with the price ceiling in place QD The quantity supplied with the price ceiling in place QS The consumer surplus with the price ceiling in place, as a shaded area (d) Are consumers better off with the price ceiling in place? Justify your answer by calculating the change in consumer surplus when the price ceiling takes effect.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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