The demand and supply in the market for textbooks are described by the following equations: Q ^ D = 200 - P Q ^ S = 2P - 40 The government is considering a unit tax of 30 dollars on textbooks. (a) Draw a supply and demand diagram. Label on your diagram the following: The free-market equilibrium price P ^ * and quantity Q ^ * . The quantity bought and sold with the tax in place Q ^ T The deadweight loss, as a shaded area (b) Find a numerical value for the deadweight loss caused by the tax. The goverment scraps the plan for a tax and instead proposes a 50 dollar price ceiling on textbooks. (c) Draw a supply and demand diagram. Label on your diagram the following: The free-market equilibrium price P ^ * and quantity Q ^ * . The quantity demanded with the price ceiling in place Q ^ D The quantity supplied with the price ceiling in place Q ^ S The consumer surplus with the price ceiling in place, as a shaded area
The demand and supply in the market for textbooks are described by the following equations: Q ^ D = 200 - P Q ^ S = 2P - 40 The government is considering a unit tax of 30 dollars on textbooks. (a) Draw a supply and demand diagram. Label on your diagram the following: The free-market equilibrium price P ^ * and quantity Q ^ * . The quantity bought and sold with the tax in place Q ^ T The deadweight loss, as a shaded area (b) Find a numerical value for the deadweight loss caused by the tax. The goverment scraps the plan for a tax and instead proposes a 50 dollar price ceiling on textbooks. (c) Draw a supply and demand diagram. Label on your diagram the following: The free-market equilibrium price P ^ * and quantity Q ^ * . The quantity demanded with the price ceiling in place Q ^ D The quantity supplied with the price ceiling in place Q ^ S The consumer surplus with the price ceiling in place, as a shaded area
Chapter4: Markets In Action
Section: Chapter Questions
Problem 1SQP
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The demand and supply in the market for textbooks are described by the following equations:
Q ^ D = 200 - P
Q ^ S = 2P - 40
The government is considering a unit tax of 30 dollars on textbooks.
(a) Draw a supply and demand diagram. Label on your diagram the following:
The free-market equilibrium price P ^ * and quantity Q ^ * .
The quantity bought and sold with the tax in place Q ^ T
The deadweight loss , as a shaded area
(b) Find a numerical value for the deadweight loss caused by the tax.
The goverment scraps the plan for a tax and instead proposes a 50 dollar price ceiling on textbooks. (c) Draw a supply and demand diagram. Label on your diagram the following:
The free-market equilibrium price P ^ * and quantity Q ^ * .
The quantity demanded with the price ceiling in place Q ^ D
The quantity supplied with the price ceiling in place
Q ^ S
The consumer surplus with the price ceiling in place, as a shaded area
(d) Are consumers better off with the price ceiling in place? Justify your answer by calculating the change in consumer surplus when the price ceiling takes effect.
You may assume that, with a price ceiling, the textbooks go to the consumers with the highest willingness to pay.
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