Homework 3: Chapter 6, 7,8
Indicate whether the sentence or statement is true or false.
____ 1. If the equilibrium wage rate is $4 per hour, and the minimum wage is $5.15 per hour, a shortage of labor will exist.
____ 2. In a competitive market, sales go to those producers who are willing to supply the product at the lowest price.
____ 3. As the size of a tax increases, the government's tax revenue rises, then falls.
____ 4. The more elastic are supply and demand in a market, the greater are the distortions caused by a tax on that market, and the more likely it is that a tax cut in that market will raise tax revenue.
a. Using the graph shown, analyze the effect a $300 price ceiling would have on the market for ten-speed bicycles. Would this be a binding price ceiling?
b. Using the graph shown, analyze the effect a $700 price floor would have on this market. Would this be a binding price floor?
c. Why would policymakers choose to impose a price ceiling or price floor?
6. Using the graph shown, answer the following questions.
a. What was the equilibrium price in this market before the tax?
b. What is the amount of the tax?
c. How much of the tax will the buyers pay?
d. How much of the tax will the sellers pay?
e. How much will the buyer pay for the product after the tax is imposed?
f. How much will the seller receive after the tax is imposed?
g. As a result of the tax, what has happened to the level of market activity?
7. Using the graph shown, determine the value of each of the following:
a. equilibrium price before the tax
b. consumer surplus before the tax
c. producer surplus before the tax
d. total surplus before the tax
e. consumer surplus after the tax
f. producer surplus after the tax
g. total tax revenue to the government
h. total surplus (consumer surplus + producer surplus + tax revenue) after the tax
i. deadweight loss
8. Illustrate on three...