Chapter 6 Exercises PDF

Chapter 6 Exercises Shuo Xu October 21, 2024 Question 1: Tax on Buyers The government imposes a $3 tax per unit on buyers of a good. The graph below shows the initial and new demand curves after the tax is imposed. An- alyze the ch...

Chapter 6 Exercises Shuo Xu October 21, 2024 Question 1: Tax on Buyers The government imposes a $3 tax per unit on buyers of a good. The graph below shows the initial and new demand curves after the tax is imposed. An- alyze the changes in consumer surplus, producer surplus, total surplus, and deadweight loss. Figure 1: Tax on Buyers Price ($) 12 10 Demand (before tax) 8 6 Demand (after tax) 4 Supply 2 Quantity 2 4 6 8 10 Question 2: Tax on Sellers The government imposes a $2 tax per unit on sellers. Analyze the changes in consumer surplus, producer surplus, total surplus, and deadweight loss. Figure 2: Tax on Sellers 1  Price ($) 12 10 Demand 8 6 4 Supply (after tax) 2 Supply (before tax) Quantity 2 4 6 8 10 Question 3: Subsidy on Buyers The government introduces a $2 per unit subsidy to buyers. Analyze the changes in consumer surplus, producer surplus, total surplus, and deadweight loss. Figure 3: Subsidy on Buyers Price ($) 12 10 Demand (after subsidy) 8 Demand (before subsidy) 6 4 Supply 2 Quantity 2 4 6 8 10 Question 4: Subsidy on Sellers The government introduces a $2 per unit subsidy to sellers. Analyze the changes in consumer surplus, producer surplus, total surplus, and deadweight loss. Figure 4: Subsidy on Sellers 2  Price ($) 12 10 Demand 8 6 4 Supply (before subsidy) 2 Supply (after subsidy) Quantity 2 4 6 8 10 Question 5: Binding Price Floor The government introduces a price floor above the equilibrium price. An- alyze the changes in consumer surplus, producer surplus, total surplus, and deadweight loss. Figure 5: Binding Price Floor Price ($) 12 10 Price Floor Supply 8 6 Demand 4 2 Quantity 2 4 6 8 10 Question 6: Binding Price Ceiling The government introduces a price ceiling below the equilibrium price. An- alyze the changes in consumer surplus, producer surplus, total surplus, and deadweight loss. Figure 6: Binding Price Ceiling 3  Price ($) 12 10 Supply 8 6 Price Ceiling 4 Demand 2 Quantity 2 4 6 8 10 Question 7 What is the primary effect of a non-binding price ceiling on a competitive mar- ket? (a) It creates a shortage in the market. (b) It creates a surplus in the market. (c) It has no effect on the market outcome. (d) It leads to higher equilibrium prices. Question 8 A binding price floor set above the equilibrium price is likely to: (a) Result in a shortage of the good. (b) Result in a surplus of the good. (c) Have no effect on the market. (d) Equally benefit consumers and producers. Question 9 When a tax is imposed on a good, the burden of the tax falls more heavily on: (a) Consumers, if demand is more elastic than supply. (b) Producers, if supply is more elastic than demand. (c) Both consumers and producers equally. 4  (d) The government, since it collects the tax revenue. Question 10 A price ceiling that is set below the equilibrium price will: (a) Cause a surplus because producers will increase production. (b) Cause a shortage because the quantity demanded will exceed the quantity supplied. (c) Cause no change in the market outcome. (d) Result in a price above the equilibrium price. 5