CS, PS, TS w/o Tax
CS = ?
PS = ?
TS = ?
CS = WIP - P
PS = P - Cost
TS = CS + TS = WTP - Cost
What is the equation for income elasticity of demand? What is the difference between normal goods and inferior goods when it comes to income elasticity?
Id = % change in Qd/% change in Income
For normal goods, Id > 0
For inferior goods, Id < 0
Graph 1
A price ceiling causes a (shortage/surplus) of ___ units.
Shortage of 85 units.
How is the burden of a tax divided?
(i) When the tax is levied on the sellers, the sellers bear a higher proportion of the tax burden.
(ii) When the tax is levied on the buyers, the buyers bear a higher proportion of the tax burden.
(iii) Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear an equal proportion of the tax burden.
(iv) Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear some proportion of the tax burden.
(iv) Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear some proportion of the tax burden.
Note: If we are given the elasticity, the tax burden would fall more heavily on the side of the market that is more inelastic.
Draw a Supply and Demand graph with a tax in place. Label CS, PS, and TS with tax. Then highlight the tringle with DWL
Results may vary
Table 1
If the price is $20, then what is total consumer surplus?
$45
What is the equation for Cross-Price Elasticity of Demand? What is the difference between substitutes and complements when it comes to the cross-price elasticity?
EdCross = % change in Qd for good 1 / % change in P for good 2
For substitutes, EdCross > 0
For complements, EdCross < 0
A binding price ceiling
(i) causes a surplus.
(ii) causes a shortage.
(iii) is set at a price above the equilibrium price.
(iv) is set at a price below the equilibrium price.
(iv) is set at a price below the equilibrium price
Graph 2
What is the price that buyers pay after the tax is imposed?
$24
What does the Laffer Curve tell you?
As the tax size increases, DWL increase. Once revenue is maximized, revenue goes down as tax size increased.
Table 2
If the price is $1,300, who would be willing to sell? What would be total PS?
Bobby, Carlos, Diane, and Evalina would be willing to sell.
Total Producer Surplus = $1750
Melvin’s Magnets earned $150 in total revenue last month when it sold 50 souvenir magnets. This month it earned $270 in total revenue when it sold 30 souvenir magnets. What is the price elasticity of demand for Melvin's Magnets?
0.5
Graph 4
The efficient price and quantity of the graph is...
P = $16 Q = 80
Graph 3
The amount of the tax on each unit of the good is
$30
Graph 2
The amount of deadweight loss as a result of the tax is
$1,500
Graph 3
Find PS, CS, and TS
PS = $2,400
CS = $3,600
TS = $6000
Which of the following is likely to have the most price elastic demand? A) Clothing B) Blue jeans C) Levi's jeans D) All of the above
Levi's jeans
Explanation: Clothing is too broad of a good. Blue jeans are little bit more specific than clothing, however, Levi’s jeans are a specific good. Remember: Price elasticity is higher for narrowly defined goods than broadly defined ones.
Graph 5
What price floors would be binding in this market? There are multiple right answers.
$12, $14, $16, $18
Graph 2
What is the per-unit tax burden on buyers?
$14
PB - PE
Graph 3
Total surplus with the tax in place is
$4,500
A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is
inelastic
Graph
How much tax revenue does this tax produce for the government?
$24
Graph 4
The amount of tax revenue received by the government is
$560
Graph 5
If the government imposes a price floor of $60 in this market, then total surplus will be
$187.50