May 29th, 2015
Price: $10 USD

Question description

NAME: _________________________________  PROBLEM SET 2

1.  A new plan before Congress to combat obesity has recommended instituting a national tax on fast food.  The demand for such food is thought to be elastic (but not perfectly elastic)

a.  Show the market for fast food before any such tax is put in place.  Identify the producer and consumer surpluses as well as the equilibrium price and quantity (you do not need to calculate these, just show them in your graph).

b.  Show a new graph indicating how this tax would change the market.  Identify which curve shifts, what happens to the price the buyer pays and the price the seller receives.  Additionally, what happens to consumer and producer surpluses, do they go up, down, or stay the same? (see below)

c.  Who would bear the larger portion of the burden of the tax?  Why?

d.  If the original market price prior to the tax was $2 and the quantity was 500 and after the tax the price the buyer pays is $2.50, the price the seller receives is $1.50, and the quantity is 400, what is the size of the dead weight loss?



Which curve shifts: _________________________________

Price Buyer Pays (up, down, same):  ____________________

Price Seller Receives (up, down, same):  ____________________

Consumer Surplus (up, down, same):  ____________________

Producer Surplus (up, down, same):  ____________________

c. __________________________________________________________________________


2.  Pollution is considered by most a negative externality.  Some economists would like to see the costs of these burdens incorporated into the price of goods that we buy.  For instance, since coal fire power plants increase emissions that could potentially lead to climate change, these economists believe that the price we pay for electricity is not adequately high enough.  Draw a completely labeled graph and illustrate on the graph how much higher electricity prices would be if the full costs of electricity production were taken into account.  You do not need to provide actual numbers, rather show on the price axis where the price would be before the externality is considered and the price after the externality is included.  What problems might exist in determining this new, externality based, price?

3.  Data for the market for graham crackers is shown below.  Calculate the elasticity of demand between the following prices.

Price of crackers

Quantity Demanded (per month)

Quantity Supplied (per month)
















$1.00 - $1.50: ___________________________________

$1.50 - $2.00: ___________________________________

$2.00 - $2.50: ___________________________________

$2.50 - $3.00: ___________________________________

If the price of graham crackers is $2.50 should firms raise or lower their prices if they want to increase revenue?  Explain this in terms of elasticity.

4.  The following table presents data for wages in the market for internet security professionals.


Quantity Demanded

Quantity Supplied
















What is the equilibrium wage? ___________________________________

Due to an increase in the internet security threats, the government wants to apply a price control in this market to encourage more people to become internet security professionals.  Assume that a wage control is set at $75,000.  Will this increase the number of people entering this labor market?  Why or why not?  If you answered no, at what wage would you set the price control?  What is the consequence of doing this?

5.  In the old days lighthouses were built along the coast to prevent ships from running aground on rocks in unfamiliar ports.  By shining a beam of light over a port and guiding ships away from rocks, these vital buildings reduced the risk for ship captains and were generally considered to be extremely valuable resources.  Curiously, lighthouses were almost always run and maintained by local governments. 

Based on what you have learned this week explain in economic terms why private firms would not run a lighthouse?

[img width="188" height="126" src="file://localhost/Users/Mohannad/Library/Caches/TemporaryItems/msoclip/0clip_image002.png" v:shapes="_x0000_i1025">

Tutor Answer

(Top Tutor) Daniel C.
School: Purdue University

Studypool has helped 1,244,100 students

Review from our student for this Answer

Jun 1st, 2015
"Goes above and beyond expectations !"
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1822 tutors are online

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors