Finance 370

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NAME: _Martha I Romero Gonzalez ___DATE: 11/14/2012

CHAPTER EIGHT PROBLEM SET

1.Use the graph below for the following:

a. Shade in the area that represents consumer surplus and label it area A.

b. Shade in the area that represents producer surplus and label it area B.

c. What is the numerical value for consumer surplus?

d. What is the numerical value for producer surplus?

2.Determine what percentage of a tax would be borne by consumers in each of the following situations:

a.Price elasticity of demand is 0.5, and price elasticity of supply is 1.

b.Price elasticity of demand is 0.5, and price elasticity of supply is 0.5.

c.Price elasticity of demand is 1.5, and price elasticity of supply is 0.5.

3.Use either the word elastic or inelastic to complete the following sentences:

a.Deadweight loss with taxes is greater when demand is __________.

b.The amount of surplus transferred from producers to consumers with a price ceiling is greater when supply is __________.

c. Producers are willing to spend more to lobby government’s support for a price floor, or to restrict supply, when demand is __________.

d.Rent controls cause more damage in the long run because, compared to the short-run supply of rental housing, long-run supply is more __________.

e.Luxury taxes do not really hurt buyers of luxuries, because demand for luxuries is __________. 4.Use the graph below for the following:

a. On the graph, demonstrate the effect of a $1 tax on equilibrium quantity and equilibrium price.

b. What is the approximate new equilibrium price of shoes? Why didn’t the price rise by the amount of the tax?

c. Shade the amount of the tax paid by consumers and label it A; shade the amount of the tax paid by producers and label it B.

5.Use the graph below for the following:

[pic]

a.What area represents the deadweight loss that would result from a price ceiling of P1?

b.What is producer surplus with a price ceiling of P1?

c.What is consumer surplus from a price ceiling of P1?

d.What is the area that represents the surplus that would be transferred from producers to consumers from a price ceiling of P1?

e.Does the price ceiling create a shortage or surplus? What is the size of that shortage or surplus?

CHAPTER EIGHTEEN PROBLEM SET

4. State what type of merger activity (horizontal, vertical, or conglomerate) is occurring in the following:

a. Staples, an office supply store, buys its competitor Office Depot.

b. Starkist, a U.S. fish processing firm, buys a Norwegian fishing trawler.

c. An Asian rice producer buys a new rice production facility in France.

d. Pepsi buys its distributor in Canada.

e. A tobacco producer buys a carbonated beverage plant.

CHAPTER TWENTY ONE PROBLEM SET
3. What are the two characteristics that make a good a public good? Explain each.

4. Use the following table below to create a market demand for a public good. Describe how you constructed the curve.

|Willingness to Pay |[pic] | | | | |Quantity | | |Erin | | |Bill | | |Ann...
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