ECON 213 Problem Set 5 Market Outcomes and Tax Incidence Assignment solutions complete answers

ECON 213 Problem Set 5 Market Outcomes and Tax Incidence Assignment solutions complete answers 

 

An annual city permit fee causes the supply curve for hot dogs from food carts to shift from S1 to S2. The fee is based on number of units sold and therefore works like a per-item tax on sellers.

Use the area tool to draw the area representing the deadweight loss that is due to the tax.

 

You are thinking about renting a room in a house next year with three of your friends. For each month’s rent, you are willing to pay $435, your first friend is willing to pay $400, your second friend is willing to pay $560, and your third friend is willing to pay $460. The landlord agrees to offer each of you separate leases but will charge you all the same price: $400.

 

Andrew paid $40 to buy a potato cannon, a cylinder that shoots potatoes hundreds of feet. He was willing to pay $45. When Andrew’s friend Javier learns that Andrew bought a potato cannon, he asks Andrew if he will sell it for $55, and Andrew agrees. Javier is thrilled, because he would have paid Andrew up to $80 for the cannon. Andrew is also delighted. 

 

You buy some beads and string from a student on campus to make a bracelet for yourself. You valued the materials at $9 but were charged only $8. Unknown to you, the seller would have sold them for $5.  


After you make the bracelet, you like it more than the original materials used to make it. You value the bracelet at $17. One day, a random stranger (who values your bracelet at $30) compliments the bracelet and offers you $20 for it, and you decide to sell it to the stranger.


What is the total surplus generated from the original purchase of beads and string combined with the sale of the bracelet to the stranger?



Marcus paid $40 to buy a potato cannon, a cylinder that shoots potatoes hundreds of feet. He was willing to pay $45. When Marcus’s friend Sam learns that Marcus bought a potato cannon, he asks Marcus if he will sell it for $60, and Marcus agrees. Sam is thrilled, because he would have paid Marcus up to $80 for the cannon. Marcus is also delighted. 

 

The table below shows the highest price that Peter, Paul, and Mary are willing to pay to see the popular Broadway musical Cats. How much is their total consumer surplus if the current ticket price is $550? 

 

If a bottle of hand-crafted ginger beer costs $3, how many bottles will the student buy?  

 

How much consumer surplus will she enjoy? Assume that the student will purchase bottles up to, but not including, the point at which she incurs a loss of consumer surplus.

 

If the price of a bottle falls to $2, how many bottles of hand-crafted ginger beer will she buy?

 

How much consumer surplus will she enjoy? Assume that the student will purchase bottles up to, but not including, the point at which she incurs a loss of consumer surplus.

 

If a bag of jelly beans costs $3, how many bags will the student buy?  

 

How much consumer surplus will she enjoy? Assume that the student will purchase bags up to, but not including, the point at which she incurs a loss of consumer surplus.

 

If the price of a bag falls to $2, how many bags of jelly beans will she buy?

 

How much consumer surplus will she enjoy? Assume that the student will purchase bags up to, but not including, the point at which she incurs a loss of consumer surplus.

 

A college student enjoys drinking hand-crafted ginger beer. Her willingness to pay for each bottle is shown in the following table.

Number of bottles
Willingness to pay (per bottle)
1
$5
2
$4
3
$3
4
$2
5
$1
6
$0
If a bottle of hand-crafted ginger beer costs $4, how many bottles will the student buy?  

 

How much consumer surplus will she enjoy? Assume that the student will purchase bottles up to, but not including, the point at which she incurs a loss of consumer surplus.

 

If the price of a bottle falls to $3, how many bottles of hand-crafted ginger beer will she buy?

 

How much consumer surplus will she enjoy? Assume that the student will purchase bottles up to, but not including, the point at which she incurs a loss of consumer surplus.

 

The table below shows the highest price that Peter, Paul, and Mary are willing to pay to see the popular Broadway musical Cats. How much is their total consumer surplus if the current ticket price is $525?

Seller
Willingness to pay
Peter
$900 
Paul
$800 
Mary
$300 
 

Marcus paid $40 to buy a potato cannon, a cylinder that shoots potatoes hundreds of feet. He was willing to pay $45. When Marcus’s friend Starling learns that Marcus bought a potato cannon, he asks Marcus if he will sell it for $65, and Marcus agrees. Starling is thrilled, because he would have paid Marcus up to $80 for the cannon. Marcus is also delighted. 
Determine the consumer surplus from the original purchase and the additional surplus generated by the resale of the cannon.

Marcus’s original consumer surplus: 

Marcus’s producer surplus from the resale: 

Starling’s consumer surplus from the resale: 

Total surplus generated from the resale: Add the second and the third answers 

 

You are thinking about renting a room in a house next year with three of your friends. For each month’s rent, you are willing to pay $580, your first friend is willing to pay $550, your second friend is willing to pay $560, and your third friend is willing to pay $610. The landlord agrees to offer each of you separate leases but will charge you all the same price: $550.
You decide this is a good deal, so you and your friends move in. A couple of months later, you learn from someone who knows the landlord that he would have been willing to rent each room for $500 per month.

What is the amount of producer surplus per month? 

What is the amount of total consumer surplus per month? 

What is the amount of total surplus each month?

 

You buy some beads and string from a student on campus to make a bracelet for yourself. You valued the materials at $9 but were charged only $7. Unknown to you, the seller would have sold them for $5.  
After you make the bracelet, you like it more than the original materials used to make it. You value the bracelet at $15. One day, a random stranger (who values your bracelet at $28) compliments the bracelet and offers you $20 for it, and you decide to sell it to the stranger.
What is the total surplus generated from the original purchase of beads and string combined with the sale of the bracelet to the stranger?

 

Monthly sales of a particular brand of spirits at one store have pre-tax demand curve D1. A new state alcohol tax is enacted, leading to the store's post-tax demand curve D2. The tax is assessed at the point of sale as a tax on buyers.
Use the area tool to draw the area representing the deadweight loss that is due to the tax, clicking on the three corners of the area. 

What deadweight loss results from the tax?

 

Monthly sales of an herbal supplement at one store have pretax demand curve D1. A new state tax on this herbal supplement shifts the post-tax demand curve to D2. The tax is assessed at the point of sale as a tax on buyers.
Use the area tool to draw the area representing the state's monthly tax revenue from this one store's sales of the taxed herbal supplement. Your drawing should be a rectangle created with four corners.

How much revenue does the tax bring in from the one store on the taxed brand?

 

A state tobacco sales tax causes the demand curve for a particular brand of cigars to shift from D1 to D2. The tax is assessed at the point of sale as a tax on buyers.
Use the area tool to draw the three-cornered area representing the producer surplus after the tax.

 

A city imposes a mandatory "guild fee" on sales of handcrafted goods. This tax causes the supply curve for handmade mailboxes to shift from S1 to S2. The fee is in effect a tax paid by sellers, as a fixed amount on each mailbox sold.
Use the area tool to draw the area representing the consumer surplus after the tax. Your answer should be a triangle with three corners.

 

A tax on a good with perfectly inelastic demand causes the price to rise and the supply to shift from S1 to S2, as shown. Use the area tool to draw the area representing the producer surplus after the tax. Your answer should be a triangle with three corners.

How has the producer surplus been affected by the tax?

 

The graph shows the supply and demand curves for quarter-gallon cans of latex paint. Use the area tool to outline the three-cornered region that represents the consumer 

What is the total consumer surplus (in dollars)? 

 

A tax on a good with perfectly inelastic demand causes the price to rise and the supply to shift from S1 to S2, as shown. Use the area tool to draw the area representing the government's tax revenue. Your answer should be a rectangle with four corners.

What portion of this tax will be paid by consumers and what portion by producers?

 

The figure below shows the effect of a $5 tax paid by the seller. Use the information in the figure to answer the questions that follow.

As a result of the tax, consumer surplus falls by $

As a result of the tax, producer surplus falls by $

 

If the government wants to raise tax revenue, which of the following items are good candidates for an excise tax?

Choose one or more: 

 

The table below shows the highest price that Peter, Paul, and Mary are willing to pay to see the popular Broadway musical Cats. How much is their total consumer surplus if the current ticket price is $500?     

 

$ 
 Seller
Willingness to pay
Peter
$925 
Paul
$800 
Mary
$225 
 

Chad paid $25 to buy a potato cannon, a cylinder that shoots potatoes hundreds of feet. He was willing to pay $45. When Chad’s friend Nick learns that Chad bought a potato cannon, he asks Chad if he will sell it for $60, and Chad agrees. Nick is thrilled, because he would have paid Chad up to $80 for the cannon. Chad is also delighted. 
Determine the consumer surplus from the original purchase and the additional surplus generated by the resale of the cannon.
Chad’s original consumer surplus:    $ 
Chad’s producer surplus from the resale:    $  
Nick’s consumer surplus from the resale:    $ 
Total surplus generated from the resale:    $ 

 

You are thinking about renting a room in a house next year with three of your friends. For each month’s rent, you are willing to pay $480, your first friend is willing to pay $450, your second friend is willing to pay $560, and your third friend is willing to pay $510. The landlord agrees to offer each of you separate leases but will charge you all the same price: $450.
You decide this is a good deal, so you and your friends move in. A couple of months later, you learn from someone who knows the landlord that he would have been willing to rent each room for $400 per month.

What is the amount of producer surplus per month?     $

What is the amount of total consumer surplus per month?     $

What is the amount of total surplus each month?     $

 

You buy some beads and string from a student on campus to make a bracelet for yourself. You valued the materials at $10 but were charged only $7. Unknown to you, the seller would have sold them for $5.  
After you make the bracelet, you like it more than the original materials used to make it. You value the bracelet at $16. One day, a random stranger (who values your bracelet at $26) compliments the bracelet and offers you $20 for it, and you decide to sell it to the stranger.
What is the total surplus generated from the original purchase of beads and string combined with the sale of the bracelet to the stranger?

Total surplus =