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Efficiency of market equilibrium · Part 2 of 4
12 exam-style questions with model answers, plus 13 quick multi-choice questions — every question on this part of the standard, grouped by the 4 pages of notes they come from.
Write a full answer before you reveal the model one. That comparison is where the learning happens.
Explain what happens to the supply curve when an indirect tax of $2 per unit is imposed, and why.
An illustrative market has Pe = $8 and Qe = 5,000 units. A tax of $3 per unit raises the consumer price to Pc = $10 and reduces quantity to Q1 = 3,800 units.
Calculate the government's tax revenue and the deadweight loss, and explain in detail the impact of the tax on producers.
An indirect tax is placed on a good. Compare and contrast the impact of the tax on consumers, producers and the government, and explain what the tax does to allocative efficiency. Refer to a supply and demand model in your answer.
A subsidy of $5 per unit is introduced. Explain what happens to the supply curve and to the quantity traded.
An illustrative market has Pe = $20 and Qe = 8,000 units. A subsidy of $6 per unit lowers the consumer price to Pc = $16 and raises quantity to Q1 = 11,000 units.
Calculate the price producers receive and the total cost to the government, and explain in detail why a deadweight loss occurs even though both consumers and producers are better off.
A government subsidises a good. Compare and contrast the impacts of the subsidy on consumers, producers and the government, and discuss whether the government can justify continuing to fund the subsidy despite the efficiency cost. Refer to a supply and demand model in your answer.
A maximum price is set below the equilibrium price. Explain what happens to quantity demanded, quantity supplied and the quantity actually traded.
An illustrative market for a food staple has Pe = $9 and Qe = 30,000 units. A minimum price of $12 is imposed. At $12, quantity supplied is 38,000 units and quantity demanded is 22,000 units.
Explain in detail the impact of the minimum price on producers and on allocative efficiency.
A government is choosing between a maximum price control and an indirect tax as ways of intervening in a market. Compare and contrast the impacts of the two policies on consumers, producers and the government, and refer to supply and demand models in your answer.
A quota limits the quantity of a good that may be sold to below the equilibrium quantity. Explain how the new price is determined.
An illustrative market has Pe = $40 and Qe = 6,000 units. A quota limits sales to 4,000 units, at which the demand curve is at $55 and the supply curve is at $32.
Explain in detail the impact of the quota on producers, and calculate the deadweight loss.
A government could reduce the quantity of a good traded either by imposing an indirect tax or by imposing a quota. Assume both are set so that exactly the same quantity is traded.
Compare and contrast the impacts of the two policies on consumers, producers and the government. Refer to supply and demand models in your answer.