Question 1
The wine industry is currently composed of many firms, and wine is sold in a perfectly competitive market. The wine industry produces the efficient annual output of wine, which is 100,000 bottles per year. The market equilibrium price is $5 per bottle.
a. Draw the market demand and supply of wine, and label the curves to show why the market out¬put is the efficient output.
b. Suppose that the wine industry is consolidated into one large monopoly firm. As a result of the monopolization of the industry, the price of wine increase to $7 per bottle, and the annual quantity demanded falls to 75,000 bottles. Why is this output not efficient? Show the loss in net benefits resulting from monopolization of the industry.
Create a graph on a spreadsheet program (such as MS Excel), copy and paste it into a MS Word document, write your answer in the MS Word document, and upload it to Blackboard.
Your response should be at least 200 words in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations.
Question 2
Taxes are likely to affect the incentives that people have to use their own resources in the most productive way. Suppose that the taxes used to finance G1 units of government goods and services could purchase X1 units of private goods and services. Assume that more than X1 units of private goods and services could be produced if taxes did not impair incentives to produce. Use the production possibility curve to illustrate the effect of taxes on the output mix in the economy. Show the loss in private output from taxes on your graph. Show how an improvement in the technology of pro¬ducing government goods and services will affect the production possibility curve. Create a graph on a spreadsheet program (such as MS Excel), copy and paste it into a MS Word document, write your answer in the MS Word document, and upload it to Blackboard.
Your response should be at least 200 words in length. You are required to use at least your textbook as source material for your response. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations.