Illustrate the effects on consumer and producer surplus

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Reference no: EM131240715

1. Suppose that the government institutes a sales tax on purchases of paper plates. Graph the effects of this tax.

2. Sometimes countries will put price ceilings on basic foodstuffs, in an effort to assure that its poorest citizens will be able to afford to eat. Suppose a country puts a price ceiling on the price of rice (and that the ceiling is set below the equilibrium market price).

a. In the very short run, suppose that the supply of rice is perfectly inelastic, since it depends only on the size of a national rice harvest that has already taken place. Assuming that demand is moderately elastic, illustrate graphically the effects on consumer and producer surplus.

b. Over a longer span of time, rice farmers will be able to adjust the amount of rice that they grow. Illustrate graphically the effect on consumer and producer surplus when the supply and demand for rice are both moderately elastic.

c. Supposing that the majority of rice eaters are workers who live in cities, while rice is grown by many small farmers living in the countryside. Describe the likely effects of this policy on urban and rural well-being, and on well-being overall.

Reference no: EM131240715

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