Reference no: EM13906104

 1) Suppose the market for semiconductors in the U.S. is characterized by: Qd = 200 – 40P [Demand] Qs = 40+ 40P [Supply] The market for semiconductors in the rest of the world is characterized by: Qd = 160 – 40P [Demand] Qs = 80 + 40P [Supply] Suppose the U.S. government imposes a quota of 24 million units on its imports of semiconductors. Calculate the magnitude of the deadweight loss resulting from the quota under the assumption that the U.S. is a small open economy. [Note: P = price per unit; Qd = millions of units demanded; Qs = millions of units supplied].[25 points] Consider the following predation game involving an incumbent and a potential entrant. Payoffs are written with the potential entrant’s profits listed first and the incumbent’s listed second. The profit numbers represent discounted values over the life of the firms.

Stays Out

(0, 10)

Predates

(-5, 0)

Potential Entrant

Enters

Incumbent

Accommodates

(4, 6)

i) What is the equilibrium of this game?

 ii) Would the equilibrium be different if the (-5, 0) payoff were instead (-5, 8)?

 Question 2. [25 points] Suppose the market for cigarettes is characterized by the following information: Qd = 70 – 5P [Demand] Qs = 3P – 10 [Supply] Suppose the government imposes a sales tax of $2 per unit. Answer questions (i) through (v) below:i) Calculate the magnitude of the consumer surplus and producer surplus in the pre-tax equilibrium.ii) Calculate the tax revenue in the post-tax equilibrium.iii) Calculate the change in consumer surplus due to the sales tax.iv) Calculate the change in producer surplus due to the sales tax.v) Calculate the Dead-Weight-Loss due to the sales tax.[Note: P = price per unit; Qd = millions of units demanded; Qs = millions of units supplied]

 Graph out Qs and Qd. It helps with the analysis.

i). Find pre tax equilibrium. Set Qs=Qd. U will get p=10 and q= 20.

ii).Tax revenue. To calculate this, you have to find the new quantity supplied and quantity.

iii). Find the new surpluses.

v). calculate deadweight loss. dead weight loss is the sum of the two small triangles. It is easier if you graph this out.

B. [25 points] Suppose the government imposes a price ceiling of $50 on a market characterized by the following information:

Qd = 700 - 2P [Demand]                     Qs = 100 + 4P [Supply]

Calculate the deadweight loss (DWL) from the price ceiling. Find a price floor that will result in the same magnitude of DWL. [Note: P = price per unit; Qd = hundreds of units demanded; Qs = hundreds of units supplied]