Assignment Question

2-1 Consider the ice cream market in Madison. In July, the ice cream market demand and supply curves are given by the following equations where Q is the quantity to ice cream units and P is the price in dollars per unit of ice cream: Demand: P = 1400 – Q/10 Supply: P = Q/20 – 100 a) Find the equilibrium price and quantity of ice cream in July. b) Suppose that the city of Madison imposes on producers an excise tax of $15 per unit of ice cream. How would the price for producers, price for consumers change? Calculate the new equilibrium price and quantity after tax imposed. c) Following question b), how much is the consumer surplus, producer surplus, government revenue, deadweight loss, and total surplus before and after? Calculate CS, PS, government revenue, deadweight loss, and total surplus before and after the tax policy. Label the areas on the graph and explain why there is deadweight loss. 2-2 Suppose in the labor market, L is full-time workers, W is hourly wage. Demand for Labor: Ld=80-5w Supply of Labor: Ls=10w-70 a) Draw a supply and demand diagram for a typical perfectly competitive labor market. Label equilibrium price and quantity. b) What happens to the labor quantity if the government sets a minimum wage of $12/hr? How many workers will be employed with the minimum wage policy? Who would benefit? Who is worse off? Is there any deadweight loss? Calculate and draw the diagram to explain. c) What happens to the labor market if the federal government sets a minimum wage of 9$/hr? 2-3 Suppose the annual demand for cotton is given by the demand curve , and the supply is . Now U.S. government decide to impose a subsidy for farmers of $2 per pound. Please show all your calculation and draw graph clearly with labeled areas. a) Find the producer and consumer surplus if there is no subsidy. b) Find what subsidy has changed the producer and consumer surplus, and is there any government surplus and deadweight loss? Why? c) Would there be any difference if the government decide to give subsidy to buyers? Explain with the graphs of comparing price, quantity, producer and consumer surplus, government surplus and deadweight loss. 2-4 Given supply function: P=3Q+20. Demand function: P=-2Q+100 a) What’s the equilibrium quantity and price? b) The technology of producer improved, right now the quantity supplied will increase by 10 units. What will be the new equilibrium quantity and price? How about the CS and PS? Calculate for social welfare effect and label the areas on the graph. 2-5 Suppose that the market for coats is described as in the table: a) What is the equilibrium price of coats? b) Suppose the government sets a price ceiling of $80. Will there be shortage or surplus? How large will the shortage/surplus be and why? c) Assume the market for coats can be derived to a linear function, please calculate the linear function for the market. Draw the graph of the market and adopting the $80 price ceiling. Calculate and label social welfare effect including consumer surplus, producer surplus, deadweight loss in the graph.

Assignment Answer

Economic Analysis of Market Equilibrium, Taxes, Subsidies, and Price Controls

Introduction

Economic principles play a crucial role in understanding the dynamics of various markets, including the ice cream market, labor market, cotton market, and the market for coats. In this essay, we will delve into the economic concepts of supply and demand, market equilibrium, government interventions such as taxes, subsidies, and price controls, and their impact on consumer surplus, producer surplus, government revenue, and deadweight loss. The analysis will adhere to the APA style guidelines and will focus on the last five years of data.