Microeconomics

 

 

Consider a good for which the inverse market demand and supply functions
are given by
PD(q) = 1 − 2q, PS(q) = 3q.
a) Please compute the competitive equilibrium (price and quantity).
2
b) What is the consumer surplus? What the producer surplus? Indicate the respective areas in a graph, and
compute their numerical values.
c) Now suppose the government imposes a quantity tax of t = 1/10. Cal- culate the new equilibrium quantity,
the demand price pD, and the supply price pS. Also, solve geometrically for the equilibrium under the
assumption (i) that consumers are in charge of paying the tax to the government, or (i) that firms are in charge.
d) Find out the new consumer surplus and the new producer surplus. How much of the tax burden t per unit is
borne by consumers and producers, respectively? How big is the deadweight loss of the tax?

 

Sample Solution

casualties to all countries participating. Crown Prince Rupprecht commented on the Entente’s great loss of life saying, “This success cost the English, according to careful estimates, a loss of at least 230,000 men…total losses of our enemies must, therefore, amount to about 350,000” (“The Battle of the Somme by Crown Prince Rupprecht”, 38). Great Britain enacted conscription for the first time for males aged 18-41 because the soldiers on the front were getting worn down and battle plans called for large frontal attacks with thousands of men. Nevertheless, an increasing problem was that new soldiers were “still far from being fully trained,” but the British needed bodies at the front lines so they threw them in anyway (“Sir Douglas Haig, British Commander-in-Chief in France and Flanders, 2nd Dispatch”, 2). The British adopted a policy called Pal’s Battalions, which had men serve with their friends and family from home. The objective was to make the men braver when they were ordered up-over-the-top of the trenches as they marched into death at No Man’s Land, but this strategy proved very deadly. In contrast, Germany had a large army and a significant reserve of officers and trained soldiers of which they relied upon to continuously supply the trench lines. Advances in technology such as the tank, Dreadnaughts, and Fokker Eindekker airplanes allowed for the war to escalate even further and cause more destruction of land, resources, and life than previously ever conceived.

The Battle of the Somme was a large Allied offensive that embodied elaborate battle preparations and military strategies. The original plan for the battle was to attack the Central Powers on three fronts, with Great Britain and France attacking in the West, Russia attacking in the East, and Italy attacking in the South. However, because of the Battle of Verdun, the Battle of the Somme became a predominantly British initiative with French assistance. In order to prepare for the Battle of Somme, the Allies accumulated immense stores of ammunition, improved roads for travel, created numerous wells for water sources, dug shelters for troops, and tunneled miles of trenches to allow for effective communication (“Sir Douglas Haig, British Commander-in-Chief of France and Flanders, 2nd Dispatch”, 2). The Allies planned to launch this major offensive against the Germans along the Somme River in France for three reasons as explained by Sir Douglas Haig, “To relieve the pressure on Verdun, to assist our Allies in other theaters of war

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