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##### ECOn 302 Homework Problems

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Question;1. (14;points) Suppose a public referendum is being held on whether or not to;levy a tax on cigarettes. Currently, the;supply of cigarettes is given by Qs = -900 + 200P. You estimate the demand for cigarettes to be;Qd = 1200 - 50P.;You are asked to evaluate the likely effects of a;tax on cigarettes equal to $2 per pack of cigarettes. Specifically, you are to file a report which;predicts by how much this will reduce the amount of cigarettes sold. You are also asked to estimate the proportion;of the tax that will be paid by the cigarette companies (sellers), and the;proportion of the tax that will be paid by the smokers (consumers) of;cigarettes.;To do this, you will first need to calculate the;current price and quantity of cigarettes sold.;a) (2 points) What is the equilibrium price and;quantity of cigarettes?;Next you know from your economics class that you;will need to know the price elasticity of demand and the price elasticity of;supply of cigarettes. (Note: for parts b-e, please leave your answers in the;form of a fraction.);b) (2 points) What is the price elasticity of;demand for cigarettes at the equilibrium price?;c) (2 points) What is the price elasticity of;supply of cigarettes at the equilibrium price?;Using your answers to b) and c), you are now able;to determine what proportion of the tax will be paid by buyers, and what;proportion of the tax will be paid by sellers.;d) (2 points) What proportion of the tax will be;paid by sellers?;e) (2;points) What price will buyers pay after the tax is imposed?;f) (2;points) What quantity of cigarettes will be sold after the tax?;g) (2 points) the deadweight loss that results from;the tax;-----------------------------------------------------------------------------------------------------------------------------;Suppose you have;$800 to spend on either concert tickets or CDs. Concert tickets cost $50 each;and CDs cost $20 each. Let T = the number of Concert Tickets, and C = the;number of CDs.;a) Write the equation of the consumer?s budget;constraint.;b)Using a graph;illustrate the budget constraint faced by this consumer. Be sure to label your;graph carefully indicating the appropriate values on the axes. Please put the;number of concert tickets (T) on the vertical axis and the number of CDs (C) on;the horizontal axis. What is the value of the marginal rate of transformation;between concert tickets and CDs?;3) Suppose hamburger is an inferior;good.Using a graph, illustrate what happens in the market for hamburger if;consumer's income rises. Be sure to label your graph carefully and accurately;and clearly indicate what happens to the equilibrium price and quantity of;hamburger.4)-- Suppose a;consumer's preferences are represented by the utility functionsU(X,Y) = x*y;Therefore - MU x = Y -MU y = X;Also suppose the consumer has $120 to spend (M=;$120) Py=1, and that they spend all of their money on goods X and Y. Also;assumer the consumer maximizes their utitlity subject to theit budget;constraint. Completely the following table

Paper#55805 | Written in 18-Jul-2015

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