Market_Equilibrium,_Market_Efficiency

SEMINAR 5: Market Equilibrium, Market Efficiency and Welfare, Taxes Problem 1

a) Find the equilibrium quantity 6

b) Find the interval in which the equilibrium price can be found 13 14

c) Choose one value of the equilibrium price from the interval you found in b) and compute the consumer’s

surplus in the equilibrium

d) Find the producer’s surplus in the equilibrium for the value of the equilibrium price you chose in c)

e) Compute the total social welfare in the equilibrium for the value of the equilibrium price you assumed in

c) and d)

f) At the equilibrium quantity you found in a), does the market reach its maximum efficiency? Explain,

discuss.

Problem 2

a) Find the equilibrium quantity 7

b) Find the interval in which the equilibrium price can be found 3 4

c) Choose one value of the equilibrium price from the interval you found in b) and compute the consumer’s

surplus in the equilibrium

d) Find the producer’s sur plus in the equilibrium for the value of the equilibrium price you chose in c)

e) Compute the total social welfare in the equilibrium for the value of the equilibrium price you assumed in

c) and d)

f) At the equilibrium quantity you found in a), does the market reach its maximum efficiency? Explain,

discuss.

Problem 3

a) Find the equilibrium quantity 6

b) Find the interval in which the equilibrium price can be found 18

c) Choose one value of the equilibrium price from the interval you found in b) and compute the consumer’s

surplus in the equilibrium

d) Find the prod ucer’s surplus in the equilibrium for the value of the equilibrium price you chose in c)

e) Compute the total social welfare in the equilibrium for the value of the equilibrium price you assumed in

c) and d)

f) At the equilibrium quantity you found in a), does the market reach its maximum efficiency? Explain,

discuss.

Problem 4

a) Find the equilibrium quantity 45

b) Find the interval in which the equilibrium price can be found 9

c) Choose one value of the equilibrium price from the interval you found in b) and compute the consumer’s

surplus in the equilibrium

d) Find the producer’s surplus in the equilibrium for the value of the equilibrium price you chose in c)

e) Compute the total social welfare in the equilibrium for the value of the equilibrium price you assumed in

c) and d)

f) At the equilibrium quantity you found in a), does the market reach its maximum efficiency? Explain,

discuss.

Problem 5

a) Find the equilibrium quantity when the demand is Value to buyer1 and explain. 6

b) Find the interval in which the equilibrium price can be found when the demand is Value to buyer1 and explain. 5 6

c) Choose one value of the equilibrium price from the interval you found in b) and compute the consumer’s

surplus in the equilibrium when the demand is Value to buyer1 and explain.

d) Find the producer’s surplus in the equilibrium for the value of the equilibrium price you chose in c) when

the demand is Value to buyer1 and explain.

e) Compute the total social welfare in the equilibrium for the value of the equilibrium price you assumed in

c) and d) when the demand is Value to buyer1 and explain.

f) At the equilibrium quantity you found in a), does the market reach its maximum efficiency? Explain,

discuss.

g) Find the equilibrium quantity when the demand is Value to buyer2 and explain. 10

h) Find the interval in which the equilibrium price can be found when the demand is Value to buyer2 and explain.

i) Choose one value of the equilibrium price from the interval you found in h) and compute the consumer’s

surplus in the equilibrium when the demand is Value to buyer2 and explain.

j) Find the producer’s surplus in the equilibrium for the value of the equilibrium price you chose in i) when the demand is Value to buyer2 and explain.

k) Compute the total social welfare in the equilibrium for the value of the equilibrium price you assumed in

i) and j) when the demand is Value to buyer2 and explain.

l) At the equilibrium quantity you found in g), does the market reach its maximum efficiency? Explain, discuss.

Problem 6

A market for wine is described by a following supply-demand schedule:

a) Find the equilibrium price and equilibrium quantity in this market.

b) Capture the equilibrium of this market in a graph and explain.

c) Explain what effect an imposition of a tax on producers of 10 CZK/liter will have on the market

equilibrium of this market if you know that the consumers will be demanding 200 thousand liters and the producers will be supplying 200 thousand liters, after the tax has been imposed.

d) Capture the effect of the tax on producers at the level of 10 CZK/ton on the market equilibrium in the

graph from question b) and check out the table to find what price the consumers will pay and what price the producers will receive, after the tax has been imposed.

e) Compute the total of the tax revenues and capture this in a graph from question b).

f) Explain how the tax burden is going to be distributed between the consumers and the producers, what this

tax incidence depends on and capture the tax incidence in the graph from question b).

g) Explain the effect of the tax in this market on economic efficiency and capture this effect in the graph

from question b).

Problem 7

The market for gas is in the state of equilibrium at the price 30 CZK/liter and the quantity traded 100 million liters. Then, the government imposes a tax of 4 CZK/liter on the consumers. The new equilibrium quantity will be 98 million liters.

a) Capture the initial market equilibrium in a graph and explain.

b) Show the effect of the tax on the market equilibrium in a graph and explain.

c) Compute the total of the tax collected and show it in the graph.

d) Discuss the tax incidence and capture it in the graph.

e) Discuss the impact of the tax on the efficiency of this market.

Problem 8

The market for beer is in the state of equilibrium at the price 50 CZK/liter and the quantity traded 10 million liters. Then, the government imposes a tax of 5 CZK/liter on the consumers. The new equilibrium quantity will be 9.5 million liters.

a) Capture the initial market equilibrium in a graph and explain.

b) Show the effect of the tax on the market equilibrium in a graph and explain.

c) Compute the total of the tax collected and show it in the graph.

d) Discuss the tax incidence and capture it in the graph.

e) Discuss the impact of the tax on the efficiency of this market.

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