How much of this revenue comes from consumers

Assignment Help Microeconomics
Reference no: EM131025574

Problem 1. For commodity X, average cost is equal to marginal cost at every level of output (AC = MC = constant). Draw graphs for part a and b.

a. Assume that the market for X is competitive, analyse the effects when an ad valorem tax of t percent is imposed.

b. Now, analyse the effects of the same tax assuming that the market for X is monopolistic.

c. Briefly discuss the differences in results in part a and b.

Problem 2. Suppose that the demand curve for a particular commodity is QXD = 2000 - 200Px. The supply of commodity X is QXS = 200Px.

a. Find the price and quantity of commodity X assuming the market is competitive.

In an effort to reduce the consumption of good X, the government puts a tax of $2 per unit, collected from the producers.

b. Calculate the quantity of good X consumed after the tax, the price paid by the consumers and the price received by the producers.

c. Calculate government revenue. How much of this revenue comes from consumers and how much from producers?

d. How much quantity is consumed, if the same tax is collected from the consumers? How much is the tax burden on each side.

Suppose the government wants to use an ad valorem tax instead of a unit tax.

e. Calculate the required tax rate, t, such that the quantity stays same as the tax-per-unit quantity in part b.

f. Calculate government revenue.

g. Draw a graph and show the before- and after-tax quantities, supply and demand curves and government revenue. (You can assume tax is collected from the producer.)

Problem 3. Petroleum refining is one of the most capital-intensive industries in Canada. Suppose that we have two industries, the petroleum industry (P) and the non-petroleum industry (NP), and that both industries use labour (L) and capital (K) as factors of production. Use a general equilibrium framework and briefly discuss the possible tax incidence in the following scenarios:

a. A tax on petroleum products (tP).
b. A tax on labour in the non-petroleum industry (tLNP), where labour is perfectly mobile across sectors. (Hint: Draw a diagram to show the output and factor substitution effects, as we did in class.)

c. A tax on labour in the non-petroleum industry (tLNP), where labour is perfectly immobile across sectors.

d. A general tax on capital (tK) where capital is perfectly immobile across sectors.

e. A general tax on capital (tK) where capital is perfectly mobile across sectors.

f. A general income tax (t).

Problem 4. Iran used to subsidise gasoline, leading to a price to consumers that was one-fifth of the market price (The Economist, 2007: 52-53). Some people believed that, since the main source of government revenue was from oil exports rather than collecting taxes, fuel subsidies did not have a distortionary effect on the economy.

a. Using a graph, indicate the income effect, substitution effect, equivalent variation (EV), subsidy paid and excess burden in terms of the value of non-gasoline products. (suppose PNG = 1 and PG = 1) (Hint: suppose there are two products, gasoline (G) and non-gasoline (NG). The horizontal axis shows quantity of gasoline and the vertical axis shows non-gasoline
products.)

b. Using your results from part a, explain the efficiency implications of this policy and whether you support this belief or not. (Use letters to refer to any area or distance on your graph)

c. Using the Pareto efficiency conditions, support your results in part b.

d. A few years ago, the government decided to remove the subsidies and pay direct transfers to the citizens. Using your graph in part a, show how this policy would affect your results.

e. Using the Pareto efficiency conditions, support your result in part d.

Reference no: EM131025574

Questions Cloud

Price with the constant dividend growth model : Sisters Corp expects to earn $6 per share next year. The firm's ROE is 12% and its plowback ratio is 60%. If the firm's market capitalization rate is 8%. Calculate the price with the constant dividend growth model.
What are the types of brain injuries that occur in sports : What are the types of brain injuries that occur in high-impact sports? At the cellular level, how are neurons and glia believed to be affected by TBIs?
What is the required return on the firms levered equity : Lone Star Industries just issued $310,000 of perpetual 10 percent debt and used the proceeds to repurchase stock. The company expects to generate $133,000 of earnings before interest and taxes in perpetuity. What is the value of the company as an unl..
How much of this revenue comes from consumers : For commodity X, average cost is equal to marginal cost at every level of output (AC = MC = constant). Draw graphs for part a and b. Assume that the market for X is competitive, analyse the effects when an ad valorem tax of t percent is imposed.
What is the full employment output of the economy : Suppose that the real hourly wage in this country is now $15. What is the current situation in the market? What is going to happen, according to the classical view? What is the real hourly wage that guarantees full employment? If the Aggregate produc..
Prove that there is an eigenvector for s which belongs to w : Explain why T has at least one eigenvalue. We will denote this eigenvalue by λ.
Manufacture your own dividend by selling little bit of stock : You purchased 2,000 shares of Zero Technologies several years ago at $50 per share. The company does not pay a regular cash dividend. You want to “manufacture” your own dividend by selling a little bit of stock each quarter. The company’s stock is cu..
Demonstrate an understanding of the theory : Application of theories/concepts to industry/real products/services. And other relevant examples and ideas provided by the student to demonstrate an understanding of the theory

Reviews

Write a Review

Microeconomics Questions & Answers

  The free rider problem

Question: Explain why the free rider problem makes it difficult for perfectly competitive markets to provide the Pareto efficient level of a public good.

  Failure of the super committee is good thing for economy

Some commentators have argued that the failure of the “Super committee” is good thing for the economy?  Do you agree?

  Case study analysis about optimum resource allocation

Case study analysis about optimum resource allocation: -  Why might you suspect (even without evidence) that the economy might not be able to produce all the schools and clinics the Ministers want? What constraints are there on an economy's productio..

  Fixed cost and vairiable cost

Questions:  :   Which of the following are likely to be fixed costs and which variable costs for a chocolate factory over the course of a month?  Explain your choice.

  Problem - total cost, average cost, marginal cost

Problem - Total Cost, Average Cost, Marginal Cost: -  Complete the following table of costs for a firm.  (Note: enter the figures in the  MC   column  between  outputs of  0 and 1, 1 and 2, 2 and 3, etc.)

  Oligopoly and demand curve problem

Problem based on Oligopoly and demand curve,  Draw and explain the demand curve facing each firm, and given this demand curve, does this mean that firms in the jeans industry do or do not compete against one another?

  Impact of external costs on resource allocation

Explain the impact of external costs and external benefits on resource allocation;  Why are public goods not produced in sufficient quantities by private markets?  Which of the following are examples of public goods (or services)? Delete the incorrec..

  Shifts in demand and movements along the demand curve

Describe the differences between shifts in demand and movements along the demand curve. What are the main factors which can shift the demand curve? Explain why they cause the demand curve to shift. Use examples and draw graphs to support your discuss..

  Article review question

Article Review Question: Read the following excerpts from the article "Fruit, veg costs surge' by Todd, Dagwell, published in the Herald on January 25th 2011 and answer questions below:

  Long-term growth, international trade & globalization

Long-term Growth, International Trade & Globalization:- This question deals with concepts such as long-term growth, international trade and globalization. Questions related to trade deficit, trade surplus, gains from trade, an international trade sce..

  European monetary union (emu) in crisis

"Does the economic bailout of Spain and Greece spell the beginning of the end for the European Monetary Union (EMU)?"

  Development game “settlers of catan”

Read the rules of the game, the overview and the almanac for the Development Game "Settlers of Catan"

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd