Intermediate Microeconomics - ONLY 2 QUESTIONS IN ONE HOUR
1.
Suppose the demand and supply for milk in the European Union (EU) is given by
p = 126 - 0.4Qd and p = 6 + 0.1Qs,
where the quantity is in the millions of liters and the price is in cents per liter. Assume that the EU does not import or export milk. (Note: 100 cents = 1 euro.)
(a) The European farmers successfully lobby for a price floor of p = 38 cents per liter. What will be the new quantity sold in the market, Q?
Q= 220 millions of liters
Find the new consumer and producer surplus after the price floor. (Round your answers to two decimal places.)
CS=96.8 million euros
PS= ?
(b)If the EU authorities were to buy the surplus milk from farmers at the price floor of 38 cents per liter, how much would they spend in millions of euros? (Round your answer to two decimal places.)
? million euros
2.
Steel is produced only in the US and the rest of the world (ROW). The inverse demand and supply in the US are
p = 120 - Q dU and p = 30 + Q sU,
while in the ROW, they are
p = 90 - Q dR and p = Q sR.
All quantities are in millions of tons and all prices are in dollars per ton. Since steel is produced more cheaply in the ROW, the US imports it from the ROW under international trade. At any price, p, the imports of the US,
QM, is the excess demand for steel given by the difference between the quantity demanded and the quantity supplied domestically in the US:
QM = Q dU - Q sU.
Similarly, the exports of the ROW,
QE,
is the excess supply of steel given by the difference between how much they produce and how much they demand:
QE = Q sR - Q dR.
(a) The US government imposes a tax of $16 per unit on the ROW's exports. Find the new world equilibrium price, p**, and new world equilibrium quantity traded, Q**.
p** = ? per ton
Q** = ? million tons
And, What are the new quantities sold in each market, in the US and the ROW?
(b) What is the tax incidence on buyers and sellers in the US? What is the tax incidence on buyers and sellers in the ROW? Explain briefly.
US buyers pay $ ? per ton, $ ? per ton more than before.
US sellers receive $ ? per ton, $ ? per ton more than before. The ROW sellers receive $ ? per ton less the tax of $16, i.e., $ ? per ton, which is $ ? per ton less than before. The ROW buyers pay $ ? per ton, which is $ ? per ton less than before.
(c)Find the new consumer and producer surplus in the US at the price p** and the tax revenue earned by the US government.
CS: ?
PS: ?
US Tax revenue: ?