CAE 1 (2017)

Ejercicio Inglés
Universidad Universidad de Barcelona (UB)
Grado Administración y Dirección de Empresas - 1º curso
Asignatura Microeconomía
Año del apunte 2017
Páginas 4
Fecha de subida 11/07/2017
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Delfina Andrade B6 BAM Continuos assessment exercise 1 Consider the following supply and demand curves in the market for a good:                                Supply:  P = 5 + ½ QS               Demand:  P = 20 – QD where Q = quantity in millions, and P =price in euros.  Compute the market equilibrium, analyse the welfare effects and show in a graph the different situations that I propose you (compare each section with the initial equilibrium).
(a)         At this equilibrium P and Q, what is the consumer surplus value, the producer surplus value and the total surplus value? 5+1/2Qs = 20-QD 3/2Q = 15 Q* =10 P* = 20-Q = 20-10 = 10 The equilibrium is at price 10 and quantity 10.
Consumer surplus (purple): 10*10/2 = 50 Producer surplus (green): 5*10/2 = 25 Total surplus: 50+25 = 75 (b)         Suppose that a price floor is imposed at P=15.00€; analyse the welfare effects of this government measure. Can you tell who gains and who loses under a price floor? Consider producers, consumers, government and society in your answer.
Price floor= 15 Qs= 2*15-10= 20 QD= 20-15= 5 Consumer surplus (purple): 5*5=12.5 Producer surplus (green): (5*5)+(25)+(5*2.5/2)= 43.75 Dead weight loss (orange): (5*5/2)+(5*2.5/2)= 18.75 Total surplus: 12.5+43.75+18.75= 75 With a price floor of 15 the consumer surplus decreases and the producer surplus increases, so the producer benefit from the price ceiling, and it creates a dead weight loss. The total surplus is equal.
Delfina Andrade B6 BAM (c) Suppose that a price ceiling is imposed at P=15.00€; analyse the welfare effects of this government measure. Can you tell who gains and who loses under a price ceiling? Consider producers, consumers, government and society in your answer.
A price ceiling of 15 is bigger than the market equilibrium price which is 10. So the price ceiling has no effect, and it’s non-binding.
(d) If the government levies an excise tax of 6.00€ per unit on all the producers, the supply curve will shift by the amount of the tax.  Derive an equation for the new supply curve. Solve for the new equilibrium P and Q, and show this equilibrium point on your graph.  And, what is the new price to consumers? And the new price received by producers? What quantity and proportion of the 6.00€ unit tax has been borne by consumers? And by the producers? What are the total tax revenues collected by the government on this product sales? Show this area on your graph. At this new equilibrium P and Q, what is the consumer surplus value, the producer surplus value and the total surplus value? Because of the tax, consumer surplus has changed, and producer surplus has changed too.  Due to this government intervention, should appear a deadweight, or welfare loss.  Compute and show this welfare loss on your graph.
Tax on producer= 6 Qs= 2*(P-6)-10= 2P-12-10= 2P-22 New equilibrium: Qs=QD 2P-22=20-P 3P=42 P*=42/3= 14 Q*=2*14-22= 6 The new equilibrium is at price 14 and quantity 6.
The supply function shifts to the left, we see in the graph the supply function S in black and the new supply function S’ in red.
Consumer surplus (purple): 6*6/2= 18 Producer surplus (green): 6*3/2=9 Dead weight loss (orange): 2*4/2+4*4/2= 12 Government tax revenue (red): 6*6=36 Total surplus: 18+9+36= 63 Delfina Andrade B6 BAM (e)         If the government levies an excise tax of 6.00€ per unit on all the consumers, the demand curve will shift by the amount of the tax.  Derive an equation for the new demand curve.
Solve for the new equilibrium P and Q, and show this equilibrium point on your graph.  And, what is the new price to consumers? And the new price received by producers? What quantity and proportion of the 6.00€ unit tax has been borne by consumers? And by the producers? What are the total tax revenues collected by the government on this product sales? Show this area on your graph. At this new equilibrium P and Q, what is the consumer surplus value, the producer surplus value and the total surplus value? Because of the tax, consumer surplus has changed, and producer surplus has changed too.  Due to this government intervention, should appear a deadweight, or welfare loss.  Compute and show this welfare loss on your graph.
Tax on consumer= 6 QD= 20-(P+6)= 14-P New equilibrium: Qs=QD 2P-10=14-P 3P=24 P*=8 Q*= 14-8= 6 The equilibrium is at price 8 and quantity 6.
The demand function shifts to the left, we see in the graph the demand function D in black and the new demand function D’ in red.
Consumer surplus (purple): 6*6/2= 18 Producer surplus (green): 6*3/2= 9 Dead weight loss (orange): 2*4/2+4*4/2= 12 Government tax revenue (red): 6*6=36 Total surplus: 18+9+36= 63 Delfina Andrade B6 BAM (f)           Let’s consider an opened economy with free trade. And, more specifically, the international price for this good is 7.00€. What’s the new market equilibrium? What is the value of the new consumer surplus? How much do consumers gain from opening this market to foreign trade? What is the value of the new producer surplus?  How much do producers lose from opening this market to foreign trade?  And, how much is the gain or loss to the domestic economy as a whole? Autarky welfare: P*=10 Q*=10 CS=50 PC=25 TS=75 Welfare with trade: Pw=7 QD=13 QS=4 M=QD-QS= 13-4= 9 Consumer surplus(purple): 13*13/2= 84.5 Producer surplus (green): 2*4/2= 4 Total surplus: 84.5+4= 88.5 Welfare variation( increase): 88.5-75= 13.5 (g)Now suppose that a 2.00€ tariff is imposed on every imported quantity.  What is the imported quantity imported after the tariff?  What is the consumer surplus after the tariff?  Are domestic consumers better off or worse off after the tariff?  What is the producer surplus after the tariff?  Are domestic producers better off or worse off after the tariff? What is the value of total taxes generated by the tariff paid to the domestic government?  Determine if the domestic economy better off or worse off after the tariff? Identify on your graph the areas that correspond to any deadweight losses caused by the tariff.  What is the value of the deadweight loss? Tariff of 2€ New price—> 7+2= 9(red) Then, QD= 11, QS=8 —>(red) M=11-8= 3 Consumer surplus (purple): 11*11/2= 60.5 Producer surplus (green): 8*4/2= 16 Dead weight loss (orange): (4*2/2)+2*2/2= 6 Government budget revenue(red) 3*2=6 Total surplus: 60.5+16+6= 82.5 ...

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