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20 views2 pages

Sheet 6

Uploaded by

georgeayman56
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© © All Rights Reserved
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WS23:ECON302

Dr. Hebatallah Ghoneim

Sheet 6: Sales Tax and Subsidy

Q1: Demand and supply in a market are described by the equations.


Qd = 66-3P
Qs = -4+2P, where Pe=14 and Qe=24
How would a per unit sales tax t=5 affect this equilibrium. Comment on how the tax is shared between
producers and consumers?

Q2: Consider the market for statisticians.


The demand and supply for statistician is given by
W= 200 – Q/10 and W = 20 + Q/20, where W is hourly wage and Q is statisticians
employed. Pe= $80 and Qe= 1200.
a- Suppose the Society of Highly Trained Statisticians (SH*TS) persuades the government
that statisticians must be licensed. The SH*TS lets the government control the limited
600 licenses available.
b- What is the wage that statisticians receive? How many statisticians are employed?
c- What is the deadweight loss caused by this policy?
d- Suppose, instead, the government set a policy of Minimum wage, the minimum allowed
W=100. How would this affect employment?

Q3: Consider the below graph, then answer related questions:

a- What is the amount of subsidy given to the producer per each unit of production?
b- What is the price paid by consumer and that received by producer after subsidy?
WS23:ECON302
Dr. Hebatallah Ghoneim

Note that before equilibrium P=7, so consumer is gaining 1 and producer is gaining 1 per
unit due to subsidy.
Total subsidy expenditure is Subsidy * Q= 2*4=6
c- Show on the graph the deadweight loss.
d- Suppose that the government imposed a price ceiling instead of subsidy to enforce a
lower price. Use the same price of your answer in b (price paid by consumer you
calculated in b), and show what is the impact of price ceiling.

Q4: Assume linear demand and supply functions of the form:

Qd = 160 - 10P
Qs = -40 + 6P
Using these demand and supply functions, answer the following questions; knowing that Pe=12.5 &
Qe=35.
a- If the government gives a subsidy per unit of $5, what is the new amount produced?
b- Calculate the revenue received by the firms before the subsidy & after the subsidy.
c- Calculate the amount spent by the government on the subsidy.

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