...equations;? 1. The supply and demand equations for the crude oil are described by the following equations;
Supply:
Demand: (P: price of crude oil per barrel)
(1) Graph the supply and the demand curve.
And solve for the equilibrium price and the equilibrium quantity of crude oil.
(2) Calculate consumer surplus and producer surplus at the equilibrium. Then, what is the total surplus at the equilibrium?
(3) Now, the Petroleum industry emits pollution and the cost to society of producing crude oil is larger than the cost to crude oil producers - Negative externality. Protecting the environment and internalizing an externality, the government imposes $6 tax on the producer to reduce the equilibrium quantity of crude oil to the socially desirable quantity.
(a) With $6 (unit: per barrel) tax on the producer of crude oil, find the new supply equation.
(b) Then, solve for the new equilibrium. What happens to the price received by sellers (producers), the price paid by buyers, and the quantity sold? (How much do the buyer pay and how much do the seller receive, and the new quantity of crude oil)
(c) Find the incidence of a tax for the buyer and producer.
(d) Calculate the new consumer surplus and the new producer surplus.
(e) Calculate the tax revenue for the government.
(f) Tax revenue can fund beneficial services for the society, so we now include it also in total surplus. Then, what is the new total surplus due to $6 tax on producer?
(g) Comparing the new total surplus in (f) to the total surplus in (2), what happens to the total surplus? Calculate the deadweight loss, if any.
3
2. Suppose that a market for the flu shot is described by the following equations.
Supply:
Demand: (P: price of flu shot)
(1) Graph the supply and the demand curve.
And solve for the equilibrium price and the equilibrium quantity of the flu shot.
(2) Calculate consumer surplus and producer surplus at the equilibrium. Then, what is the total surplus at the equilibrium?
(3) Now, the flu season is around the corner and the government wants to prevent spreading of the flu. So the government uses a subsidy of $8(per shot) on the buyer of the flu shot to increase the number of people to the socially desirable quantity.
(a) With an $8 (per shot) subsidy on the buyer of flu shot, find the new demand equation.
(b) Then, solve for the new equilibrium. What happens to the price received by sellers, the price paid by buyers, and the quantity sold? (How much do the buyer pay and how much do the seller receive, and the new quantity of flu shot)
(c) Calculate the new consumer surplus and the new producer surplus.
(d) Does the government gain the revenue or lose the revenue by the subsidy policy? Calculate the government revenue from this policy.
(e) If we include the government revenue from the subsidy policy in total surplus, what is the new total surplus due to an $8 subsidy on buyer?
(f) Comparing the new total surplus in (e) to the total surplus in (2), what happens to the total surplus? Calculate the deadweight loss, if any.
Supply:
Demand: (P: price of crude oil per barrel)
(1) Graph the supply and the demand curve.
And solve for the equilibrium price and the equilibrium quantity of crude oil.
(2) Calculate consumer surplus and producer surplus at the equilibrium. Then, what is the total surplus at the equilibrium?
(3) Now, the Petroleum industry emits pollution and the cost to society of producing crude oil is larger than the cost to crude oil producers - Negative externality. Protecting the environment and internalizing an externality, the government imposes $6 tax on the producer to reduce the equilibrium quantity of crude oil to the socially desirable quantity.
(a) With $6 (unit: per barrel) tax on the producer of crude oil, find the new supply equation.
(b) Then, solve for the new equilibrium. What happens to the price received by sellers (producers), the price paid by buyers, and the quantity sold? (How much do the buyer pay and how much do the seller receive, and the new quantity of crude oil)
(c) Find the incidence of a tax for the buyer and producer.
(d) Calculate the new consumer surplus and the new producer surplus.
(e) Calculate the tax revenue for the government.
(f) Tax revenue can fund beneficial services for the society, so we now include it also in total surplus. Then, what is the new total surplus due to $6 tax on producer?
(g) Comparing the new total surplus in (f) to the total surplus in (2), what happens to the total surplus? Calculate the deadweight loss, if any.
3
2. Suppose that a market for the flu shot is described by the following equations.
Supply:
Demand: (P: price of flu shot)
(1) Graph the supply and the demand curve.
And solve for the equilibrium price and the equilibrium quantity of the flu shot.
(2) Calculate consumer surplus and producer surplus at the equilibrium. Then, what is the total surplus at the equilibrium?
(3) Now, the flu season is around the corner and the government wants to prevent spreading of the flu. So the government uses a subsidy of $8(per shot) on the buyer of the flu shot to increase the number of people to the socially desirable quantity.
(a) With an $8 (per shot) subsidy on the buyer of flu shot, find the new demand equation.
(b) Then, solve for the new equilibrium. What happens to the price received by sellers, the price paid by buyers, and the quantity sold? (How much do the buyer pay and how much do the seller receive, and the new quantity of flu shot)
(c) Calculate the new consumer surplus and the new producer surplus.
(d) Does the government gain the revenue or lose the revenue by the subsidy policy? Calculate the government revenue from this policy.
(e) If we include the government revenue from the subsidy policy in total surplus, what is the new total surplus due to an $8 subsidy on buyer?
(f) Comparing the new total surplus in (e) to the total surplus in (2), what happens to the total surplus? Calculate the deadweight loss, if any.