1. Please answer the following questions based on the below graph:
a. What is the elasticity of demand when the price changes from $6 to $10? Does this make demand elastic, inelastic or unit elastic in this range?
b. What is the elasticity of supply when the price changes from $6 to $4? Does this make supply elastic, inelastic or unit elastic in this range?
c. What is the change in consumer surplus if a price ceiling of $4 is imposed?
d. What is the change in producer surplus if a price ceiling of $4 is imposed?
e. How much deadweight loss is caused by this price ceiling of $4?
f. Make an argument for/against such a price floor, clearly noting the strengths and weaknesses of your argument (i.e. what would we be giving up if we followed your advice, and why, in your opinion, is this worth giving up).
2. Please answer the following questions based on the below graph:
a. What is the elasticity of demand when the price changes from $4 to $5? Does this make demand elastic, inelastic or unit elastic in this range?
b. What is the elasticity of supply when the price changes from $4 to $2? Does this make supply elastic, inelastic or unit elastic in this range?
c. How much of a $3 tax would consumers pay in this market? What would be the change in their consumer surplus associated with this tax?
d. How much of a $3 tax would sellers pay in this market? What would be the change in their consumer surplus associated with this tax?
e. How much government revenue would be caused by a $3 tax in this market? How much deadweight loss?
f. Who pays the majority of the $3 tax in this market? How does this answer relate to your answers to parts (a) and (b)?