Questions:
Q1. The supply curve for Toyota Prius cars is given by the equation P = 4Q + 40, where Q is the number of Toyota Prius cars supplied and P is the price in 1000 dollars per unit. The demand curve for Toyota Prius cars is given by the equation P =140-Q, where Q is the number of Toyota Prius cars demanded and P is the price in 1000 dollars per unit.
Note: You must use one single graph for A, B, C, D, E, G, H, I, and K.
A. Calculate and graph the equilibrium price and quantity.
B. Calculate the price when the quantity demanded is zero, and show the result in the graph.
C. Calculate the quantity demanded when the price is zero, and show the result in the graph.
D. Calculate the price when the quantity supplied is zero, and show the result in the graph.
E. Calculate the consumer surplus and the producer surplus, and show the results in the graph.
F. With a regular interval of 10 between prices,
(i) Calculate the next three prices above (the equilibrium price and the next three prices below the equilibrium price. For example, if the equilibrium price is 40, the next higher price is 50 and the next lower price is 30. All prices must be in thousands dollars.
(ii) For each price, show the corresponding quantity demanded, the corresponding quantity supplied, and the corresponding market shortage or market surplus in a separate table organized like Table in Callan/Thomas’ 6th on Environmental Economics and Management: Theory, Policy, and Applications.
Each of the market shortages must be in parentheses.
(iii) In 200-300 total words, identify and explain market shortages and market surpluses from the table in above. Use two decimal points for the calculated figures for quantities.
Suppose now that the government introduces a per unit tax of 10 to discourage the production and consumption of Toyota Prius cars.
G. Show in the graph the effect of the per-unit tax levied on suppliers and consumers.
H. Calculate the per unit tax borne by consumers, and show it in the graph.
I. Calculate the per unit tax borne by suppliers, and show it in the graph.
J. With at least three practical examples in public administration, define deadweight loss in 50-70 total words.
K. Calculate the welfare loss (deadweight loss) associated with the 10 tax, and show it in the graph.
L. As a public manager, separately explain what the per unit tax means in terms of (a) ALLOCATIVE EFFICIENCY for society and (b) TECHNICAL EFFICIENCY for the suppliers of Toyota Prius cars.
Q2. The supply curves of three branches of Georgia Global Power are given by the following equations:
i. Q1 = -800 + 2P
ii. Q2 = -400 + 5P
iii. Q3 = -600 + 4P
Where Q is the quantity (in 1000s of electric kilowatts) supplied, and P is the price per kilowatt.
The demand curves of four companies that consume electricity from the three branches of Georgia Global Power are given by the following equations:
i. Q1 = 3000 -3P
ii. Q2 = 4000 - 2P
iii. Q3 = 2000 – 2P
iv. Q4 = 3000 – 3P
Note: You must use one single graph for 2A to 2I
A. Provide both graphical and algebraic (equation) depictions of the market supply (the combined supply of the three branches) of electric kilowatts. Show the results in the graph.
B. How many electric kilowatts are supplied in the market if the market price is $600 per kilowatt? Show the result in the graph.
C. How many electric kilowatts are supplied by each of the three branches of Georgia Global Power if the market price is $600 per kilowatt? Show the results in the graph.
D. Provide both graphical and algebraic depictions of the market demand (the combined demand of the four consumers) for electric kilowatts. Show the results in the graph.
E. Based on the market supply and demand you calculated in (A) and (D), what are the equilibrium price and quantity of electric kilowatts? Show the results in the graph.
F. Calculate the consumer surplus and the producer surplus. Show the results in the graph.
Suppose now that the government introduces a tax of $30 per kilowatt to discourage Georgia Global Power from supplying electricity from coal and petroleum. Using the same graph as for 2A to 2F, answer the following questions.
G. How much revenue does the government raise with the tax? Show the revenue in the graph.
H. How do consumer and producer surpluses change due to the tax? Show the changes in the graph.
I. What is the deadweight loss associated with the tax? Show the result in the graph.
J. As a public manager, advise our society and our government about whether or not to keep/increase/decrease the tax. Base your advice on the criterion of (i) allocative efficiency and (ii) the elasticity of demand and supply curves in the graph.
Suppose now that the government introduces a subsidy (rather than a tax) of $30 per kilowatt to encourage Georgia Global Power to supply electricity from wind/solar energy.
While showing your calculations for each question, depict your results for 2K to 2M in a separate graph that also has the results for 2A to 2F.
K. How much does the government spend on the subsidy? Show the result in the graph.
L. How do consumer and producer surpluses change due to the subsidy? Show the changes in the graph.
M. What is the deadweight loss associated with the subsidy? Show the result in the graph.
N. As a public manager, advise the government about whether or not to keep/increase/decrease the subsidy. Base your advice on the criteria of (i) allocative efficiency and (ii) the elasticity of demand and supply curves in the graph.