3550 Quiz 9 F10 Last Name: ___ First Name:
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๎Analyze๎the๎effect๎on๎social๎welfare๎of๎a๎sales๎tax๎
Ex)๎Demand๎and๎supply๎for๎beer๎(per๎sixโpack)๎in๎Denton๎can๎be๎illustrated๎by๎the๎following๎equations:๎
(Inverse)๎Demand:๎๎ P๎=๎20๎โ๎25
1Q๎[or๎Q๎=๎๎โ๎25P๎+๎500,๎if๎you๎prefer]๎
(Inverse)๎Supply:๎P๎=๎5๎+๎50
1Q๎[or๎Q๎=๎50P๎โ๎250,๎if๎you๎prefer]๎
a. Calculate๎total๎surplus๎(=consumer๎surplus๎and๎producer๎surplus).๎
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b. Now๎let๎us๎assume๎that๎the๎government๎imposes๎a๎$3๎excise๎tax๎on๎each๎producer.๎
Calculate๎total๎surplus๎(=consumer๎surplus๎+๎producer๎surplus๎+๎government๎tax๎
revenue)๎
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c. Measure๎the๎deadweight๎loss๎
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๎Analyze๎the๎effect๎on๎social๎welfare๎of๎a๎subsidy.๎
d. ๎Now๎let๎us๎assume๎that๎the๎government๎provides๎a๎$3๎subsidy๎to๎each๎producer.๎
Calculate๎total๎surplus๎(=consumer๎surplus๎+๎producer๎surplus๎โ๎government๎subsidy๎
expenditure)๎
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e. Measure๎the๎deadweight๎loss๎
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