--%>
Assignment Help - homework help

Gasoline market-Demand and supply problem

Let us suppose that US gasoline market has the demand and supply curves
Qd = 10 – 0.5Pd
Qs = -2 + Ps when Ps ≥ 2 and Qs = 0 if Ps < 2,

Here quantities stand for millions of gallons per year and prices refer to the amount of $ per gallon

(i) With no tax, determine the equilibrium price and quantity?

(ii) Assume that the government imposes an excise tax of $3 per gallon. Then what will the new equilibrium quantity? Determine the price which buyers pay? And what price will sellers receive?

(iii) Determine the impact of this tax on the consumer excess and the producer excess. In addition, compute the tax collection from government and the welfare deadweight loss.

E

Expert

Verified

With a $3 tax, setting Qd = Q implies

10 - 0.5 (Ps + 3) = -2 + Ps 

After replacing into the equation for Pd implies Pd = 10.  Replacing this price into the equation for quantity demanded entails  million.  At such prices and quantities, consumer excess is $25 million, producer excess is $12.5 million, and government tax receipts are $15 million. The deadweight loss is $1.5 million. The deadweight loss evaluates the difference among potential net benefits ($54 million) and the total benefits which are really attained ($25 + $12.5 + $15 = $52.5 million).

   Related Questions in International Economics

  • Q : Circular flow model In simple circular

    In simple circular flow model, the only entities which finally consume goods, own resources, pay taxes or bear the loads of inflation, experience joy, or suffer pain, are as: (i) corporations. (ii) Households. (iii) Government agencies. (iv) Business

    		•
  • Q : Manegment . In 2007 and 2008 Boeing ran

    . In 2007 and 2008 Boeing ran into several publicized issues with regard to its management of a globally dispersed supply chain. What are the causes of these problems? What can a company such as Boeing do to make sure such problems do not occur in the future?

    		•
  • Q : Gasoline market-Demand and supply

    Let us suppose that US gasoline market has the demand and supply curvesQd = 10 – 0.5PdQs = -2 + Ps when Ps ≥ 2 and Qs = 0 if Ps < 2,

    Q : Influence of demand in exchange rate If

    If exchange rate of foreign currency downs or falls, its demand rises. Describe how? Answer: If exchange rate falls, an import become cheaper, demand for imports in

    		•
  • Q : Components of capital account of

    Components of capital account of balance of payment: A) Borrowing and lending to and from abroad.B) Change in foreign exchange reserves C) Investment to and from abroad.

    		•
  • Q : Problem related to direct foreign

    China is a huge manufacturer of technology of telephone devices. It has lately become a member of W.T.O. that means it can sell its products in other member countries such as India. Assume that it does export a big number of telephone instruments to India:

  • Q : Problem regarding Comparative advantage

    Assume that El Salvador can generate coffee at lower opportunity costs than Spain, whereas Spain can generate olive oil at lower opportunity costs than El Salvador. The citizens of both countries can potentially profit from international trade since of the efficiency

    		•
  • Q : Survey regarding Trade policy Find a

    Find a recent survey about a trade policy issue and assess it, examining the structure of the questions and the target audience. Verify the sample size, assess the methods used to administer the survey and analyze results, identifying the confidence around the results

    		•
  • Q : Define induced investment Induced

    Induced investment: It is a type of investment that is of profit motive in nature.

    		•
  • Q : Accounts in Balance of Payments or BOP

    Name the accounts in the balance of payments (BOP)? Answer: a. Current account: It exhibits the imports and exports of services and goods and transfer payments.b. Capital Account: It exhibits the assets and li

    		•