Microeconomics Answers

Suppose the market for widgets can be described by the following equations: Demand: P = 10 - Q Supply: P = Q - 4 where P is the price in dollars per unit and Q is the quantity in thousands of units. Then: a. What is the equilibrium price and quantity? [2] b. Suppose the government imposes a tax of $1 per unit to reduce widget consumption and raise government revenues. What will the new equilibrium quantity be? What price will the buyer pay? What amount per unit will the seller receive? [5] c. Suppose the government has a change of heart about the importance of widgets to the happiness of the American public. The tax is removed and a subsidy of $1 per unit granted to widget producers. What will the equilibrium quantity be? What price will the buyer pay? What amount per unit (including the subsidy) will the seller receive? What will be the total cost to the government? 

Suppose the government wants to limit imports of a certain good. Is it preferable to use an import quota or a tariff? Motivate why you recommend one over the other

Demonstrate how if a public good is to be provided in some fixed amount or not provided at all, then a necessary and sufficient condition for provision to be Pareto efficient is that the sum of the willingnesses to pay (the reservation prices) exceeds the cost of the public good

Demonstrate how if a public good is to be provided in some fixed amount or not provided at all, then a necessary and sufficient condition for provision to be Pareto efficient is that the sum of the willingnesses to pay (the reservation prices) exceeds the cost of the public good

. Using graphs, explain what will happen to the equilibrium price and the equilibrium quantity of a product in a perfectly competitive market as a result of each of the following scenarios: a. A rise in the number of buyers and a decrease in the cost of producing the product. b. Advances in the technology used to produce the product and a decrease in the price of a substitute.

Seasonal goods are goods that are consumed in larger quantities during some seasons than in other seasons, e.g. strawberries or hotel rooms near a beach during summer. While the price for strawberries is lowest during their season of highest consumption the price for hotel rooms near the beach is highest during their season of highest consumption. Explain why.

Given the original demand and supply equations for period 1, Qd = 120 - 6P and Qs = 12 + 4P solve the following:

Problem 1: The new and original price equilibrium given that the new demand and supply equations are Qd = 130 - 6P and Qs = 20 + 4P

Problem 2: The new and original quantity equilibrium given that the new demand and supply equations are Qd = 130 - 6P and Qs = 20 + 4P

Problem 3: The change in price equilibrium given that the new demand and supply equations are Qd = 130 - 6P and Qs = 20 + 4P

Problem 4: The change in quantity equilibrium given that the new demand and supply equations are Qd = 130 - 6P and Qs = 20 + 4P

1. Suppose the good in question is alcohol. Why might the elasticity fall when the time horizon increases?

impact on equilibrium price and quantity in the market

for Starbucks coffee lattes if the cost of producing them increases

 Demand:𝒑𝒅 =𝟕𝟐−𝟏.𝟐𝟓∗𝒒𝒅

 Supply:𝒑𝒔 =𝟏𝟐.𝟓+𝟐.𝟐𝟓∗𝒒𝒔

Imagine now that the government imposes a tax of $𝟒. 𝟓 on the producers of hammers.

a) What is the new equilibrium quantity?