Wisconsin ECON 215 – Suppose that in the market for bread

Homework #6Due Nov. 28th at the beginning of class.Questions 1-22 are worth 4 points each.1. Suppose that in the market for bread, a particular marginal seller is willingto accept $3.00 in order to supply a loaf of bread. Now, a per-unit taxon bread is imposed at the amount of $1.00 per loaf of bread. This tax iscollected from the suppliers of bread. With the addition of the tax, howmuch is the marginal seller now willing to accept in order to supply theloaf of bread?2. Suppose that in the market for bread, a particular marginal seller is willing to accept $3.00 in order to supply a loaf of bread. Now, a per-unitsubsidy on bread is initiated at the amount of $1.00 per loaf of bread.This subsidy is given to the suppliers of bread. With the addition of thesubsidy, how much is the marginal seller now willing to accept in order tosupply the loaf of bread?Let’s analyze the effects of a per-unit tax on the market for widgets. Demand and supply are given below: Demand:P = 20 ? QSupply: P = 2 + Q3. What is the equilibrium quantity in the market for widgets?4. What is the equilibrium price in the market for widgets?A per-unit tax of $2.00 per widget is now collected from the sellers ofwidgets. Remember from class that we can model this per-unit tax as areduction in supply, or a leftward shift of the supply curve by the amountof the tax. Mathematically, this means that the supply curve with the taxis given by the equation Supply with Tax: P = 4 + Q5. How many widgets will be bought and sold after the introduction of thetax?6. After the tax, a buyer pays $12.00 for a widget at the store. How muchdoes the buyer actually pay in total, including the tax?7. How much does the seller actually receive in total, including the tax? 1 Now, instead of a per-unit tax collected from suppliers, suppose that the$2.00 per-unit tax is collected from buyers, or demanders. Remember fromclass that we can model this per-unit tax as a reduction in demand, or aleftward shift of the demand curve. Mathematically, this means that thedemand curve with the tax is given by the equation Demand with Tax: P = 18 ? Q8. How many widgets will be bought and sold after the introduction of thetax?9. After the tax, a buyer pays $10.00 for a widget at the store. How muchdoes the buyer actually pay in total, including the tax?10. How much does the seller actually receive in total, including the tax?Remember that both a tax and a surplus will generally create dead weightloss in markets.11. Dead weight loss in the market for widgets due to a tax is the result of(a) too few widgets being bought and sold.(b) too many widgets being bought and sold.12. Dead weight loss in the market for widgets due to a subsidy is the resultof(a) too few widgets being bought and sold.(b) too many widgets being bought and sold.13. When some fraction of the benefit of an activity is received by people notparticipating in the activity, it is called a(n):(a) winner’s curse.(b) positive externality.(c) external cost.(d) efficient allocation.14. The existence of a negative externality will result in:(a) a less than optimal level of production.(b) a greater than optimal level of production.(c) prices that are artificially high.(d) elimination of dead weight loss. 2 15. In the case of either a positive or negative externality, it will always betrue that, relative to the social optimum:(a) the market price will be too low.(b) the market price will be too high.(c) the market price will send an inaccurate signal of true cost or benefit.(d) the quantity provided by the market will be too large.Suppose that a vaccine is developed for a highly contagious strain of flu.The likelihood that anyone will get this flu decreases as more people receive the vaccine. One of the demand curves in the diagram reflects privatebenefits and the other reflects social benefits. 16. Refer to the figure above. Private incentives will lead toreceiving the vaccine at a cost of. people (a) 75; $80(b) 75; $50(c) 50; $60(d) 50; $9017. Refer to the figure above. If the flu vaccine is provided by private markets,deadweight loss will be.(a) zero(b) $375(c) $500(d) $1,125 3 18. Refer to the figure above. This externality could most effectively be corrected by:(a) taxing vaccines.(b) encouraging people to negotiate private payments to those who receive the vaccine.(c) subsidizing vaccines.(d) free provision of 275 vaccines.19. Taylor lives in a residential neighborhood that prides itself on well-groomedlawns. Taylor’s neighbors find that the collective marginal benefit of someone else’s well-groomed lawn is $10. Taylor, however, dislikes yard workand receives zero net benefit from an unkempt lawn and a net benefit of-$1 for a well-groomed lawn; the cost of maintaining the lawn is a dollarmore than Taylor’s benefit of having a well-groomed lawn. Refer to the information given above.20. Taylor’s neighbors would be willing to pay Taylorgroomed lawn. to keep a well (a) $1(b) more than $1 but less than $5(c) more than $10(d) no more than $10Setting off fireworks for graduation would benefit me by $100. The fireworks will cost me $50 to purchase. My neighbors will be annoyed to the”cost” of $75.21. Can me and my neighbor contract in order for me to set off fireworks?22. What would be the minimal price of the fireworks for a contract to bepossible in this situation?The following question is worth 12 points.23. Give an example of a negative externality that you have either seen orexperienced in your own life. How might this externality been corrected? 4