In the Land of Hialeah the supply curve for roses
is given by
Q = -10 + 1.5*P
and the demand curve for roses is
Q = 10 - 0.5 P
A. When the quantity
demanded is 5 what must have been the price?
B. When the price is 15 what is the
C. What are the equilibrium price
and quantity? P
Consumer surplus is defined as the
difference between what consumers are willing to pay (points on the demand
curve) and the price that they have to pay, aggregated over all consumers.
Graphically, it is the triangle area under the demand curve but above the
D. Given the equilibrium price and
quantity, what is consumer surplus in the market for roes?
E. Suppose that a $.50 excise tax (i.e. a per
unit tax) is collected from the supplier. If the seller is to continue
supplying the same quantity as at the 'no tax' equilibrium what gross price
must she receive?
F. What will be the new equilibrium price and
G. What is the change in price paid by the
between parts C. and F. (before and after the imposition of the tax)?
H. What is the change in the price received by
the seller, net of taxes?
I. As a result of the tax does consumer
surplus go up or down
Econ 51 Home Page
Econ 52 Home Page