Ag Econ 1042
Fourth Quiz, 25 points
Due February 6, 2007
Name ___________ KEY ____________________
Section: 8 a.m. or 11 a.m.
(Circle one)
This assignment is a review of some basic market principles from microeconomics. Since the U.S. and most developed countries are market based, understanding markets is essential to understanding how their national economies function. The basic market outcomes are prices and quantities exchanged. Using demand and supply we can explain how these prices and quantities were determined. We can also show how the benefits were divided among buyers, sellers and the government, when the government is involved.
Use the hypothetical information below to develop graphs to show the market situation using the tools of demand and supply and the concepts of consumer and producer surplus. (FYI: we will use these concepts again when analyzing international trade).
P
6
Qs
8
Qd
16
7
8
9
10
11
9
10
11
12
13
15
14
13
12
11
12 14 10
Diagram the basic situation shown (graph 1). The demand and supply curves are continuous straight lines. The data only shows a portion of the curves but the diagram should include the entire demand curve and supply at least to the point where quantity demanded would be zero. It will be easiest on you and us if you use graph paper for the graphs.
Show consumer and producer surplus on the graph and determine the dollar value of each.
Now show on a separate graph (2) what happens if the government imposes a $2 per unit excise tax. We are taxing some ethanol imports from Brazil in this fashion. This type of tax has been proposed for oil and/or gasoline. The government is collecting the tax from the sellers. On this graph show consumer surplus, producer surplus and the revenue the government receives from the tax. Determine the dollar amount of the consumer surplus, producer surplus and government revenue to fill in the following table.
With Tax
60.5
40.5
22
Consumer Surplus
Producer Surplus
Government Revenue
Points
Graph 1
Graph 2
8 points
12 points
CS, PS, Government Revenue 5 points
Penalties: Graph not stapled to assignment
Name not complete or illegible
Sloppy or illegible
Original
72
70
------
(-2 points)
(-2 points)
(-2 per occurrence)