曼昆微观经济学习题分析解析

1. Describe some of the trade-offs faced by each of

the following:

a. a family deciding whether to buy a new car

b. a member of Congress deciding how much

to spend on national parks

c. a company president deciding whether to

open a new factory

d. a professor deciding how much to prepare

for class

e. a recent college graduate deciding whether

to go to graduate school

2. You are trying to decide whether to take a vacation. Most of the costs of the vacation (airfare, hotel, and forgone wages) are measured in

dollars, but the benefits of the vacation are psychological. How can you compare the benefits

to the costs?

3. You were planning to spend Saturday working

at your part-time job, but a friend asks you to

go skiing. What is the true cost of going skiing?

Now suppose you had been planning to spend

the day studying at the library. What is the cost

of going skiing in this case? Explain.

4. You win $100 in a basketball pool. You have

a choice between spending the money now or

putting it away for a year in a bank account

that pays 5 percent interest. What is the opportunity

cost of spending the $100 now?

5. The company that you manage has invested

$5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction

of competing products has reduced

the expected sales of your new product to

$3 million. If it would cost $1 million to finish development and make the product, should

you go ahead and do so? What is the most that

you should pay to complete development?

6. The Social Security system provides income for people over age 65. If a recipient of Social

Security decides to work and earn some

income, the amount he or she receives in Social Security benefits is typically reduced.

a. How does the provision of Social Security

affect people’s incentive to save while

working?

b. How does the reduction in benefits associated with higher earnings affect people’s

incentive to work past age 65?

7. A 1996 bill reforming the federal government’s antipoverty programs limited many welfare recipients to only two years of benefits.

a. How does this change affect the incentives

for working?

b. How might this change represent a trade-off between equality and efficiency?

8. Your roommate is a better cook than you are,

but you can clean more quickly than your roommate can. If your roommate did all the cooking and you did all the cleaning, would

your chores take you more or less time than if

you divided each task evenly? Give a similar example of how specialization and trade can

make two countries both better off.

9. Explain whether each of the following government activities is motivated by a concern about

equality or a concern about efficiency. In the

case of efficiency, discuss the type of market

failure involved.

a. regulating cable TV prices

b. providing some poor people with vouchers

that can be used to buy food

c. prohibiting smoking in public places

d. breaking up Standard Oil (which once

owned 90 percent of all oil refineries) into

several smaller companies

e. imposing higher personal income tax rates

on people with higher incomes

f. instituting laws against driving while intoxicated

10. Discuss each of the following statements from the standpoints of equality and efficiency.

a. “Everyone in society sho uld be guaranteed

the best healthcare possible.”

b. “When workers are laid off, they should be

able to collect unemployment benefits until

they find a new job.”

11. In what ways is your standard of living different

from that of your parents or grandparents

when they were your age? Why have these changes occurred?

12. Suppose Americans decide to save more of

their incomes. If banks lend this extra saving to businesses, which use the funds to build new factories, how might this lead to faster growth

in productivity? Who do you suppose benefits

from the higher productivity? Is society getting

a free lunch?

13. In 2010, President Barack Obama and Congress enacted a healthcare reform bill in the United States. Two goals of the bill were to provide

more Americans with health insurance (via subsidies for lower-income households financed

by taxes on higher-income households) and

to reduce the cost of healthcare (via various

reforms in how healthcare is provided).

a. How do these goals relate to equality and efficiency?

b. How might healthcare reform increase productivity in the United States?

c. How might healthcare reform decrease productivity in the United States?

14. During the Revolutionary War, the American colonies could not raise enough tax revenue

to fully fund the war effort; to make up this difference, the colonies decided to print more money. Printing money to cover expenditures

is sometimes referred to as an “inflation tax.”

Who do you think is being “taxed” when more money is printed? Why?

15. Imagine that you are a policymaker trying to decide whether to reduce the rate of inflation.

To make an intelligent decision, what would

you need to know about inflation, unemployment, and the trade-off between them?

16. A policymaker is deciding how to finance the construction of a new airport. He can either

pay for it by increasing citizens’ taxes or by

printing more money. What are some of the

short-run and long-run consequences of each option?

1. Draw a circular-flow diagram. Identify the parts of the model that correspond to the flow

of goods and services and the flow of dollars

for each of the following activities.

a. Selena pays a storekeeper $1 for a quart of milk.

b. Stuart earns $4.50 per hour working at a fastfood restaurant.

c. Shanna spends $30 to get a haircut.

d. Sally earns $10,000 from her 10 percent ownership

of Acme Industrial.

2. Imagine a society that produces military goods and consumer goods, which we’ll call “guns”

and “butter.”

a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost, explain why it most likely has a

bowed-out shape.

b. Show a point that is impossible for the economy to achieve. Show a point that is feasible

but inefficient.

c. Imagine that the society has two political parties, called the Hawks (who want a

strong military) and the Doves (who want a smaller military). Show a point on your production possibilities frontier that the Hawks

might choose and a point the Doves might choose.

d. Imagine that an aggressive neighboring country reduces the size of its military. As a result, both the Hawks and the Doves reduce

their desired production of guns by the same amount. Which party would get the bigger “peace dividend,” measured by the increase

in butter production? Explain.

3. The first principle of economics discussed in Chapter 1 is that people face trade-offs. Use

a production possibilities frontier to illustrate society’s trade-off between two “goods”—a

clean environment and the quantity of industrial output. What do you suppose determines

the shape and position of the frontier? Show

what happens to the frontier if engineers

develop a new way of producing electricity

that emits fewer pollutants.

4. An economy consists of three workers: Larry, Moe, and Curly. Each works ten hours a day

and can produce two services: mowing lawns

and washing cars. In an hour, Larry can either mow one lawn or wash one car; Moe can either mow one lawn or wash two cars; and Curly

can either mow two lawns or wash one car.

a. Calculate how much of each service is produced under the following circumstances,

which we label A, B, C, and D:

? All three spend all their time mowing

lawns. (A)

? All three spend all their time washing

cars. (B)

? All three spend half their time on each

activity. (C)

? Larry spends half h is time on each activity,

while Moe only washes cars and Curly

only mows lawns. (D)

b. Graph the production possibilities frontier

for this economy. Using your answers to

part (a), identify points A, B, C, and D on

your graph.

c. Explain why the production possibilities frontier has the shape it does.

d. Are any of the allocations calculated in part

(a) inefficient? Explain.

5. Classify the following topics as relating to microeconomics or macroeconomics.

a. a family’s decision about how much income

to save

b. the effect of government regulations on auto emissions

c. the impact of higher national saving on economic growth

d. a firm’s decision about how many workers

to hire

e. the relationship between the inflation rate

and changes in the quantity of money

6. Classify each of the following statements as positive or normative. Explain.

a. Society faces a short-run trade-off between

inflation and unemployment.

b. A reduction in the rate of money growth will reduce the rate of inflation.

c. The Federal Reserve should reduce the rate

of money growth.

d. Society ought to require welfare recipients to look for jobs.

e. Lower tax rates encourage more work and

more saving.

7. If you were president, would you be more interested in your economic advisers’ positive views or their normative views? Why?

1. Maria can read 20 pages of economics in an hour. She can also read 50 pages of sociology in

an hour. She spends 5 hours per day studying.

a. Draw Maria’s production possibilities frontier

for reading economics and sociology.

b. What is Maria’s opportunity cost of reading

100 pages of sociology?

2. American and Japanese workers can each produce 4 cars a year. An American worker can

produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things simple, assume that each country has 100 million workers.

a. For this situation, construct a table analogous

to the table in Figure 1.

b. Graph the production possibilities frontier of

the American and Japanese economies.

c. For the United States, what is the opportunity cost of a car? Of grain? For Japan, what is the opportunity cost of a car? Of grain? Put this information in a table analogous to Table 1.

d. Which country has an absolute advantage in producing cars? In producing grain?

e. Which country has a comparative advantage

in producing cars? In producing grain?

f. Without trade, half of each country’s workers produce cars and half produce grain. What quantities of cars and grain does each country produce?

g. Starting from a position without trade, give

an example in which trade makes each country better off.

3. Pat and Kris are roommates. They spend most of their time studying (of course), but they leave some time for their favorite activities: making pizza and brewing root beer. Pat takes 4 hours

to brew a gallon of root beer and 2 hours to

make a pizza. Kris takes 6 hours to brew a gallon of root beer and 4 hours to make a pizza.

a. What is each roommate’s opportunity cost

of making a pizza? Who has the absolute advantage in making pizza? Who has the comparative advantage in making pizza?

b. If Pat and Kris trade foods with each other, who will trade away pizza in exchange for

root beer?

c. The price of pizza can be expressed in terms

of gallons of root beer. What is the highest

price at which pizza can be traded that

would make both roommates better off?

What is the lowest price? Explain.

4. Suppose that there are 10 million workers in Canada and that each of these workers can produce either 2 cars or 30 bushels of wheat in a year.

a. What is the opportunity cost of producing a

car in Canada? What is the opportunity cost

of producing a bushel of wheat in Canada? Explain the relationship between the opportunity costs of the two goods.

b. Draw Canada’s production possibilities frontier. If Canada chooses to consume 10 million

cars, how much wheat can it consume without trade? Label this point on the production possibilities frontier.

c. Now suppose that the United States offers to buy 10 million cars from Canada in exchange

for 20 bushels of wheat per car. If Canada continues to consume 10 million cars, how

much wheat does this deal allow Canada to consume? Label this point on your diagram. Should Canada accept the deal?

5. England and Scotland both produce scones and sweaters. Suppose that an English worker can produce 50 scones per hour or 1 sweater per hour. Suppose that a Scottish worker can produce 40 scones per hour or 2 sweaters per hour.

a. Which country has the absolute advantage in

the production of each good? Which country

has the comparative advantage?

b. If England and Scotland decide to trade,

which commodity will Scotland trade to

England? Explain.

c. If a Scottish worker could produce only 1

sweater per hour, would Scotland still gain

from trade? Would England still gain from

trade? Explain.

6. The following table describes the production possibilities of two cities in the country of Baseballia:

Pairs of Red Socks Pairs of White Socks

per Worker per Hour per Worker per Hour

Boston 3 3

Chicago 2 1

a. Without trade, what is the price of white

socks (in terms of red socks) in Boston? What

is the price in Chicago?

b. Which city has an absolute advantage in the production of each color sock? Which city has

a comparative advantage in the production of

each color sock?

c. If the cities trade with each other, which color

sock will each export?

d. What is the range of prices at which trade can

occur?

7. Suppose that in a year an American worker

can produce 100 shirts or 20 computers, while

a Chinese worker can produce 100 shirts or

10 computers.

a. Graph the production possibilities curve for

the two countries. Suppose that without trade

the workers in each country spend half their

time producing each good. Identify this point

in your graph.

b. If these countries were open to trade, which

country would export shirts? Give a specific

numerical example and show it on your

graph. Which country would benefit from

trade? Explain.

c. Explain at what price of computers (in terms

of shirts) the two countries might trade.

d. Suppose that China catches up with

American productivity so that a Chinese

worker can produce 100 shirts or 20 computers. What pattern of trade would you

predict now? How does this advance

in Chinese productivity affect the economic

well-being of the citizens of the two

countries?

8. An average worker in Brazil can produce an ounce of soybeans in 20 minutes and an ounce

of coffee in 60 minutes, while an average worker

in Peru can produce an ounce of soybeans in

50 minutes and an ounce of coffee in 75 minutes.

a. Who has the absolute advantage in coffee? Explain.

b. Who has the comparative advantage in coffee? Explain.

c. If the two countries specialize and trade

with each other, who will import coffee? Explain.

d. Assume that the two countries trade and that

the country importing coffee trades 2 ounces

of soybeans for 1 ounce of coffee. Explain why both countries will benefit from this trade.

9. Are the following statements true or false? Explain in each case.

a. “Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods.”

b. “Certain very talented people have a comparative advantage in everything they do.”

c. “If a certain trade is good for one person, it

can’t be good for the other one.”

d. “If a certain trade is good for one person, it is always good for the other on

e.”

e. “If trade is good for a country, it must be

good for everyone in the country.”

10. The United States exports corn and aircraft to the rest of the world, and it imports oil and clothing from the rest of the world. Do you think this pattern of trade is consistent with the principle of comparative advantage? Why or why not?

11. Bill and Hillary produce food and clothing. In an hour, Bill can produce 1 unit of food or 1 unit

of clothing, while Hillary can produce 2 units

of food or 3 units of clothing. They each work

10 hours a day.

a. Who has an absolute advantage in producing food? Who has an absolute advantage in producing clothing? Explain.

b. Who has a comparative advantage in producing food? Who has a comparative advantage

in producing clothing? Explain.

c. Draw the production possibilities frontier

for the household (that is, Bill and Hillary together) assuming that each spends the

same number of hours each day as the other producing food and clothing.

d. Hillary suggests, instead, that she specialize

in making clothing. That is, she will do all the clothing production for the family; however, if

all her time is devoted to clothing and they still want more, then Bill can help with clothing production. What does the household production possibilities frontier look like now?

e. Bill suggests that Hillary specialize in producing food. That is, Hillary will do all the food production for the family; however, if all her

time is devoted to food and they still want more, then Bill can help with food production. What does the household production possibilities frontier look like under Bill’s proposal?

f. Comparing your answers to parts c, d, and e, which allocation of time makes the most sense? Relate your answer to the theory of comparative advantage.

1. Explain each of the following statements using supply-and-demand diagrams.

a. “When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout

the country.”

b. “When the weathe r turns warm in New England every summer, the price of hotel

rooms in Caribbean resorts plummets.”

c. “When a war breaks out in the Middle East,

the price of gasoline rises, and the price of a

used Cadillac falls.”

2. “An increase in the demand for noteboo ks raises

the quantity of notebooks demanded but

not the quantity supplied.” Is this statement

true or false? Explain.

3. Consider the market for minivans. For each

of the events listed here, identify which of the determinants of demand or supply are affected. Also indicate whether demand or supply increases or decreases. Then draw a diagram

to show the effect on the price and quantity of minivans.

a. People decide to have more children.

b. A strike by steelworkers raises steel prices.

c. Engineers develop new automated machinery for the production of minivans.

d. The price of sports utility vehicles rises.

e. A stock-market crash lowers people’s wealth.

4. Consider the markets for DVDs, TV screens, and tickets at movie theaters.

a. For each pair, identify whether they are complements

or substitutes:

? DVDs and TV screens

? DVDs and movie tickets

? TV screens and movie tickets

b. Suppose a technological advance reduces the cost of manufacturing TV screens. Draw a diagram to show what happens in the market

for TV screens.

c. Draw two more diagrams to show how the change in the market for TV screens affects

the markets for DVDs and movie tickets.

5. Over the past 30 years, technological advances have reduced the cost of computer chips. How do you think this has affected the market

for computers? For computer software? For typewriters?

6. Using supply-and-demand diagrams, show the effect of the following events on the market for sweatshirts.

a. A hurricane in South Carolina damages the cotton crop.

b. The price of leather jackets falls.

c. All colleges require morning exercise in appropriate attire.

d. New knitting machines are invented.

7. A survey shows an increase in drug use by young people. In the ensuing debate, two hypotheses are proposed:

? Reduced police efforts have increased the availability of drugs on the street.

? Cutbacks in education efforts have

decreased awareness of the dangers of drug addiction.

a Use supply-and-demand diagrams to show

how each of these hypotheses could lead to

an increase in quantity of drugs consumed.

b How could information on what has happened

to the price of drugs help us to distinguish between these explanations?

8. Suppose that in the year 2015 the number of births is temporarily high. How does this baby boom affect the price of babysitting services in 2020 and 2030? (Hint: 5-year-olds need babysitters, whereas 15-year-olds can be babysitters.)

9. Ketchup is a complement (as well as a condiment) for hot dogs. If the price of hot dogs rises,

what happens to the market for ketchup? For tomatoes? For tomato juice? For orange juice?

10. The market for pizza has the following demand and supply schedules:

Price Quantity Demanded Quantity Supplied

$4 135 pizzas 26 pizzas

5 104 53

6 81 81

7 68 98

8 53 110

9 39 121

a. Graph the demand and supply curves. What

is the equilibrium price and quantity in this market?

b. If the actual price in this market were above

the equilibrium price, what would drive the

market toward the equilibrium?

c. If the actual price in this market were below

the equilibrium price, what would drive the

market toward the equilibrium?

11. Consider the following events: Scientists reveal that consumption of oranges decreases the risk

of diabetes, and at the same time, farmers use

a new fertilizer that makes orange trees more productive. Illustrate and explain what effect

these changes have on the equilibrium price and quantity of oranges.

12. Because bagels and cream cheese are often eaten together, they are complements.

a. We observe that both the equilibrium price of cream cheese and the equilibrium quantity of bagels have risen. What could be responsible

for this pattern—a fall in the price of flour

or a fall in the price of milk? Illustrate and

explain your answer.

b. Suppose instead that the equilibrium

price of cream cheese has risen but the equilibrium quantity of bagels has fallen.

What could be responsible for this pattern—

a rise in the price of flour or a rise in the

price of milk? Illustrate and explain your answer.

13. Suppose that the price of basketball tickets at your college is determined by market forces. Currently, the demand and supply schedules

are as follows:

Price Quantity Demanded Quantity Supplied $ 4 10,000 tickets 8,000 tickets

8 8,000 8,000

12 6,000 8,000

16 4,000 8,000

20 2,000 8,000

a. Draw the demand and supply curves. What

is unusual about this supply curve? Why

might this be true?

b. What are the equilibrium price and quantity

of tickets?

c. Your college plans to increase total enrollment next year by 5,000 students. The

additional students will have the following demand schedule:

Price Quantity Demanded

$ 4 4,000 tickets

8 3,000

12 2,000

16 1,000

20 0

Now add the old demand schedule and the

demand schedule for the new students to

calculate the new demand schedule for the

entire college. What will be the new equilibrium price and quantity?

14. Market research has revealed the following information about the market for chocolate bars: The demand schedule can be represented by

the equation Q D = 1,600 – 300P, where Q D is the quantity demanded and P is the price. The supply schedule can be represented by the equation

Q S = 1,400 + 700P, where Q S is the quantity supplied. Calculate the equilibrium price and quantity

in the market for chocolate bars.

1. For each of the following pairs of goods, which good would you expect to have more elastic demand and why?

a. required textbooks or mystery novels

b. Beethoven recordings or classical music recordings in general

c. subway rides during the next six months or subway rides during the next five years

d. root beer or water

2. Suppose that business travelers and vacationers have the following demand for airline tickets

from New York to Boston:

Quantity Demanded Quantity Demanded

Price (business travelers) (vacationers)

$150 2,100 tickets 1,000 tickets

200 2,000 800

250 1,900 600

300 1,800 400

a. As the price of tickets rises from $200 to $250, what is the price elasticity of demand

for (i) business travelers and (ii) vacationers? (Use the midpoint method in your calculations.)

b. Why might vacationers have a different elasticity from business travelers?

3. Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the

long run.

a. if the price of heating oil rises from $1.80

to $2.20 per gallon, what happens to the

quantity of heating oil demanded in the short

run? In the long run? (Use the midpoint

method in your calculations.)

b. Why might this elasticity depend on the time horizon?

4. A price change causes the quantity demanded

of a good to decrease by 30 percent, while

the total revenue of that good increases by

15 percent. Is the demand curve elastic or inelastic? Explain.

5. The equilibrium price of coffee mugs rose sharply last month, but the equilibrium quantity was

the same as ever. Three people tried to explain

the situation. Which explanations could be

right? Explain your logic.

Billy: Demand increased, but supply was

totally inelastic.

Marian: Supply increased, but so did

demand.

Valerie: Supply decreased, but demand was

totally inelastic.

6. Suppose that your demand schedule for DVDs

is as follows:

Quantity Demanded Quantity Demanded

Price (income = $10,000) (income = $12,000) $ 8 40 DVDs 50 DVDs

10 32 45

12 24 30

14 16 20

16 8 12

a. Use the midpoint method to calculate your

price elasticity of demand as the price of

DVDs increases from $8 to $10 if (i) your

income is $10,000 and (ii) your income is

$12,000.

b. Calculate your income elasticity of demand

as your income increases from $10,000 to

$12,000 if (i) the price is $12 and (ii) the price

is $16.

7. You have the following information about good X and good Y:

? Income elasticity of demand for good X: –3

? Cross-price elasticity of demand for good X

with respect to the price of good Y: 2

Would an increase in income and a decrease in

the price of good Y unambiguously decrease

the demand for good X? Why or why not?

8. Maria has decided always to spend one-third of her income on clothing.

a. What is her income elasticity of clothing demand?

b. What is her price elasticity of clothing demand?

c. If Maria’s tastes change and s he decides

to spend only one-fourth of her income

on clothing, how does her demand curve change? What is her income elasticity and

price elasticity now?

9. The New York Times reported (Feb. 17, 1996) that subway ridership declined after a fare increase:

“T here were nearly four million fewer riders

in December 1995, the first full month after the price of a token increased 25 cents to $1.50, than

in the previous December, a 4.3 percent decline.”a. Use these data to estimate the price elasticity

of demand for subway rides.

b. According to your estimate, what happens

to the Transit Authority’s revenue when the

fare rises?

c. Why might your estimate of the elasticity be unreliable?

10. Two drivers—Tom and Jerry—each drive up to

a gas station. Before looking at the price, each places an order. Tom says, “I’d like 10 gallons

of gas.” Jerry says, “I’d like $10 worth of gas.”What is each driver’s price elasticity of demand?

11. Consider public policy aimed at smoking.

a. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack

of cigarettes currently costs $2 and the government

wants to reduce smoking by

20 percent, by how much should it increase

the price?

b. If the government permanently increases

the price of cigarettes, will the policy have a

larger effect on smoking one year from now

or five years from now?

c. Studies also find that teenagers have a

higher

price elasticity than do adults. Why

might this be true?

12. You are the curator of a museum. The museum is running short of funds, so you decide to increase revenue. Should you increase or decrease the price of admission? Explain.

13. Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand. Suppose that technological advance doubles the supply of both products (that is,

the quantity supplied at each price is twice

what it was).

a. What happens to the equilibrium price and quantity in each market?

b. Which product experiences a larger change

in price?

c. Which product experiences a larger change

in quantity?

d. What happens to total consumer spending

on each product?

14. Several years ago, flooding along the Missouri and the Mississippi rivers destroyed thousands

of acres of wheat.

a. Farmers whose crops were destroyed by the floods were much worse off, but farmers

whose crops were not destroyed benefited

from the floods. Why?

b. What information would you need about the market for wheat to assess whether farmers

as a group were hurt or helped by the

floods?

15. Explain why the following might be true:

A drought around the world raises the total revenue that farmers receive from the sale of grain, but a drought only in Kansas reduces the total revenue that Kansas farmers receive.

1. Lovers of classical music persuade Congress to impose a price ceiling of $40 per concert ticket. As a result of this policy, do more or fewer

people attend classical music concerts?

2. The government has decided that the free-market price of cheese is too low.

a. Suppose the government imposes a binding

price floor in the cheese market. Draw

a supply-

and-demand diagram to show the

effect of this policy on the price of cheese and

the quantity of cheese sold. Is there a shortage

or surplus of cheese?

b. Farmers complain that the price floor has reduced their total revenue. Is this possible? Explain.

c. In response to farmers’ complaints, the government agrees to purchase all the surplus

cheese at the price floor. Compared to the

basic price floor, who benefits from this new policy? Who loses?

3. A recent study found that the demand and

supply

schedules for Frisbees are as follows:

Price per Quantity Quantity

Frisbee Demanded Supplied

$11 1 million Frisbees 15 million Frisbees

10 2 12

9 4 9

8 6 6

7 8 3

6 10 1

a. What are the equilibrium price and quantity

of Frisbees?

b. Frisbee manufacturers persuade the government that Frisbee production improves

scientists’ understanding of aerodynamics

and thus is important for national security. A concerned Congress votes to impose a price

floor $2 above the equilibrium price. What is

the new market price? How many Frisbees

are sold?

c. Irate college students march on Washington

and demand a reduction in the price of

Frisbees. An even more concerned Congress

votes to repeal the price floor and impose a

price ceiling $1 below the former price floor.

What is the new market price? How many Frisbees are sold?

4. Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased. (In fact, both the federal and state governments impose beer taxes of some sort.) a. Draw a supply-and-demand diagram of the market for beer without the tax. Show the

price paid by consumers, the price received

by producers, and the quantity of beer sold. What is the difference between the price

paid by consumers and the price received by producers?

b. Now draw a supply-and-demand diagram

for the beer market with the tax. Show the

price paid by consumers, the price received

by producers, and the quantity of beer sold. What is the difference between the price

paid by consumers and the price received

by producers? Has the quantity of beer sold increased or decreased?

5. A senator wants to raise tax revenue and make workers better off. A staff member proposes raising the payroll tax paid by firms and using part of the extra revenue to reduce the payroll tax paid by workers. Would this accomplish

the senator’s goal? Explain.

6. If the government places a $500 tax on luxury cars, will the price paid by consumers rise by more than $500, less than $500, or exactly $500? Explain.

7. Congress and the president decide that the United States should reduce air pollution by reducing its use of gasoline. They impose a $0.50 tax for each gallon of gasoline sold.

a. Should they impose this tax on producers

or consumers? Explain carefully using a

supply-and-demand diagram.

b. If the demand for gasoline were more elastic, would this tax be more effective or less effective in reducing the quantity of gasoline consumed? Explain with both words and a diagram.

c. Are consumers of gasoline helped or hurt by

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