Principles Of Economics, Ap Edition, 9781337292603, 1337292605, 2018
8th Edition
ISBN: 9781337292603
Author: Mankiw
Publisher: Cengage Learning (2018)
expand_more
expand_more
format_list_bulleted
Question
Chapter 8, Problem 8PA
To determine
The impact of subsidy on the commodity.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
In this module, we learned about deadweight loss and analyzed the welfare effects of a tax on a good. Now consider the opposite policy. Suppose that the government subsidizes a good: For each unit of the good sold, the government pays $2 to the buyer. How does the subsidy affect consumer surplus, producer surplus, tax revenue, and total surplus? Does a subsidy lead to a deadweight loss? Why or why not?
The supply of headphones is linear and upward sloping, and the demand for headphones is linear and downward sloping. Suppose the
government imposes a per-unit tax in the market for headphones. In this market, the tax decreases consumer surplus by $5,200.00, and
it decreases producer surplus by $2,800.00. The tax decreased the equilibrium quantity of the good by 1,200.00 headphones, and it
generated a deadweight loss of $2,400.00. The tax revenue generated by this tax is $
Part 2
The per-unit tax in the market for headphones must be $
Part 3
With the tax in place, the total number of headphones traded in the market is
headphones.
The demand and supply equations for a product are: Q* =
0.2
300 – 6P and Q' = -40 + 6P.
Determine the market equilibrium and draw graphs.
Suppose that the government decides to impose a flat tax of
10% on each unit sold. Show that the price that consumers pay
would be the same if the government imposed a tax of Rs.
1.70 per unit sold. Draw graphs and explain.
Also calculate the total revenue earned by sellers before and
after the tax, the tax revenue raised by the government,
changes in consumer and producers surplus and dead weight
loss.
Chapter 8 Solutions
Principles Of Economics, Ap Edition, 9781337292603, 1337292605, 2018
Ch. 8.1 - Prob. 1QQCh. 8.2 - The demand for beer is more elastic than the...Ch. 8.3 - Prob. 3QQCh. 8 - Prob. 1CQQCh. 8 - Prob. 2CQQCh. 8 - Prob. 3CQQCh. 8 - Prob. 4CQQCh. 8 - Prob. 5CQQCh. 8 - Prob. 6CQQCh. 8 - Prob. 1QR
Ch. 8 - Prob. 2QRCh. 8 - Prob. 3QRCh. 8 - Why do experts disagree about whether labor taxes...Ch. 8 - What happens to the deadweight loss and tax...Ch. 8 - Prob. 1PACh. 8 - Prob. 2PACh. 8 - Prob. 3PACh. 8 - Prob. 4PACh. 8 - Prob. 5PACh. 8 - Prob. 6PACh. 8 - Prob. 7PACh. 8 - Prob. 8PACh. 8 - Prob. 9PACh. 8 - Prob. 10PA
Knowledge Booster
Similar questions
- Suppose the current equilibrium price of cheese pizzas is $9.00, and 11 million pizzas are sold per month. After the federal government imposes a $3.00 per pizza tax, the equilibrium price of pizzas rises to $10.00, and the equilibrium quantity falls to 9 million. Compare the economic surplus in this market when there is no tax to when there is a tax on pizza. With the tax, the change in economic surplus is A. the new surplus equal to the area under the demand curve and above the supply curve for units between the quantity with the tax and market equilibrium quantity. B. the deadweight loss equal to the area under the demand curve and above the supply curve for units between the quantity with the tax and market equilibrium quantity. C. the new surplus equal to the area under the demand curve and above the supply curve for the market equilibrium quantity. D. the deadweight loss equal to the area under the demand curve and above the supply curve for the quantity with the tax. New…arrow_forwardQuestion 1 In the market for swim suits, demand is P = 58 - 0.011Q and supply is P = 5 + 0.009Q. The government imposes a tax of $2 per swim suit. Calculate the total surplus after the tax.arrow_forwardAt the current market equilibrium, the price elasticity of demand for a certain good is much higher than the price elasticity of supply. If the government imposes a $2 specific tax on this good, who will bear more of the burden of the tax? Illustrate.arrow_forward
- Richard and Henry like soda drinks. Henry's demand for soda is: P=10-Q; the demand for Richard is P=5.5-0.5Q. The supply of soda cans is perfectly elastic at P=1. The government imposes a tax on soda cans equal to t=$1 per can. a) Which consumer will suffer the greater loss of consumer surplus in response of the tax? why?b) Would the government prefer all consumers to be like Henry or like Richard if the government wants to maximise tax revenue? Why? Accompany your answer with a diagram to illustrate your argument.arrow_forwardThis chapter analyzed the welfare effects of a tax on a good. Consider now the opposite policy. Suppose that the government subsidizes a good. For each unit of the goods sold, the government pays $2 to the buyer. A) Use the black point (plus symbol) to indicate the initial equilibrium in this market before the subsidy. Then use the green point (triangle symbol) to shade the area representing consumer surplus, and use the purple point (diamond symbol) to shade the area representing producer surplus. B) On the following graph, use the tan segment (dash symbols) to indicate the wedge formed between the price received by producers and the price consumers pay out of their own pocket. (Hint: Find the quantity to the right of the initial equilibrium where the difference between the supply and demand curves is $2.) Next use the black point (plus symbol) to indicate the price producers receive at that quantity, and use the grey point (star symbol) to indicate the price consumers…arrow_forwardSuppose the market for cigarette is competitive. An economist estimates the price elasticity of demand and supply for cigarette are -0.8 and 0.7 respectively. Suppose the government imposes a per-unit tax of $45 Some economists believe that a sales tax, in general, is undesirable. Explain. Despite this, why do most countries still impose a tax on cigarette? Explain plausible arguments.arrow_forward
- C). Suppose that the equilibrium price for this product is $4 and the equilibrium quantity is 100 units. If the government imposes a price floor of $5 what happens? Draw the new graph explaining how quantities are affected by that decision. D). Now, consider that the government imposes a tax of $0.50 on sellers. Show what happens to the initial equilibrium price of $4 and draw the new quantity on the graph. E). The government imposes a tax of $0.50 on buyers. Show what happens to the initial equilibrium price of $4 and draw the new quantity on the graph. F). Explain how the burden of the two different taxes (as seen in C and D, above) is divided between buyers and sellers. G). If you are a buyer in these cases, would you prefer a relatively elastic or inelastic demand curve compared to the supply curve? Why? H). If you are a seller in these cases, would you prefer a relatively elastic or inelastic supply curve compared to the demand curve? Whyarrow_forwardThe demand and supply equations for a product are: Q^d=300-6p and Q^x=-40+6p. . Determine the market Equilibrium and draw graphs. Suppose that the government decides to impose a flat tax of 10% on each unit sold. Show that the price that consumers pay would be the same if the government imposed a tax of Rs. 1.70 per unit sold. Draw graph and explain . Also calculate the total revenue earned by sellers before and after the tax, the tax revenue raised by the government, changes in consumer and producers surplus and dead weight lossarrow_forwardUse the graph to answer the following question: Which of the following statements is most true? A) Producers will pay the entire tax. B) Consumers will pay 1/3 of the tax. C) Producers will pay 1/3 of the tax. D) Consumers will pay the entire tax.arrow_forward
- In the market for candy, researchers have estimated the following demand and supply curves. Demand: P= 8 - Q/100 Supply: P= (3Q)/700 If the government imposes an excise tax of $0.50 per unit. What is tax revenue out of this tax? (Remember that the tax does not change the demand and supply curves).arrow_forwardIn the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. The government is able to raise $750 per month in revenue from the tax. The deadweight loss from the tax isarrow_forwardSuppose the market for cigarette is competitive. An economist estimates the price elasticity of demand and supply for cigarette are -0.8 and 0.7 respectively. Suppose the government imposes a per-unit tax of $45 on the cigarette sellers. By how much would buyers share the tax burden respectively? Show your calculation.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
