# Intermediate microeconomics eco 340 | Financial markets homework help

Intermediate MicroeconomicsECO 340Problem Set 5Due on Thursday October 29th at the beginning of classYou must show how you arrived at every single answer on the problem set. You willreceive ZERO credit for any answer where you don’t show your work.1. (30 pts) Suppose you are an aide to a U.S. Senator who is concerned about theimpact of a recently proposed excise tax on the welfare of her constituents. Youexplained to the Senator that one way of measuring the impact on her constituentsis to determine how the tax change affects the level of total surplus enjoyed by theconstituents. Based on your arguments, you are given the go-ahead to conduct aformal analysis, and obtain the following estimates of demand and supply:
.a. (5 pts) What are the equilibrium quantity and equilibrium price in this market?b. (5 pts) Graph the market equilibrium and identify the consumer surplus, theproducer surplus and the total surplus in this market.c. (5 pts) Compute the price elasticities of demand and supply at the marketequilibrium.d. (5 pts) If a \$2 excise tax is levied on the firms that produce this good, what willhappen to the price paid by consumers, the price received by firms, and thequantity traded in the market?e. (5 pts) What is the incidence of this tax on consumers and producers? Explainwhy the incidence of the tax is split this way?f. (5 pts) Graph the market equilibrium and identify the new consumer surplus,the producer surplus, the government revenue, and the dead weight loss. Whatis the change in consumer and producer surplus associated with the tax.2
(20 pts) Suppose that the market for cigarettes is initially in equilibrium and isperfectly competitive. The demand curve can be expressed as P = 60 − Q d ; thesupply curve can be expressed as P = 0.5Q s . Quantity is expressed in millions ofboxes per month.a. (10 pts) What are the equilibrium quantity and equilibrium price in this market?Graph the market equilibrium and identify the consumer surplus, the producersurplus, and the total surplus in this market
ECON 340
Fall 2005
1

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