## (solution) please answer question 4 on the document. Thank you.

please answer question 4 on the document. Thank you.

Carleton University, Economics 3405A Assignment 1

Due October 12th, 2016 at the beginning of class. The assignment is 2 pages and consists

of a number of questions which are all to be completed. A subset of these questions will be

marked by the Teaching Assistant. Provide a concise but clear explanation of your answers. Marks

are awarded based completely on the quality of your explanations. You are encouraged to work

together, but you must submit your own work.

1. Why might producers in some sectors be more likely to ask the government for a reduction in

consumption taxes, relative to producers in other sectors? What characterizes a sector that

is more likely to ask for such favour.

2. Imagine a world with two individuals, a rich one denoted by R, and a poor one denoted by

P . Both individuals consume gas, and their demands are given by QR = 100 ? 0.5P and

QP = 60 ? P respectively, where P is the price of gas, and QR and QP are the quantities

consumed. Imagine the price of gas is \$40. The government wants to introduce a carbon tax

of \$10 per units of gas consumed, but is concerned about the impact it will have on the poor

individual.

(a) Is it possible to collect new tax revenue, and at the same time guarantee that the poor

individual will not be made worse-off by the new carbon tax? Be specific, and make

sure you calculate the final tax revenue. Assume the government is able to observe who

is poor and who is rich.

(b) So far, we have assumed that the supply of gas was perfectly elastic. Imagine that the

supply was no longer perfectly elastic, would it be easier or harder to guarantee that the

poor individual is not made worse-off by the new carbon tax? Be specific; using a graph

may be helpful.

3. The inverse demand p(q) for bowling balls is given by p = 100 ? 5q where p is the price of

bowling balls and q is the consumption of bowling balls. The price of a bowling ball is \$5.

(a) What is the total quantity of bowling balls consumed, and what is the consumer surplus.

(b) The government set a tax of 20% on bowling balls, what is the total quantity of bowling

balls consumed, what is the consumer surplus, the tax revenue and the dead-weight loss.

4. The inverse demand p(q) for bowling balls is given by p = 100 ? 2q where p is the price of

bowling balls and q is the consumption of bowling balls. One store sells bowling balls, the

supply is given by p = 50 + 5q.

(a) What is the total quantity of bowling balls consumed and what is the price per unit.

What is the consumer surplus and the producer surplus.

(b) The government set a tax of 2\$ on bowling balls, what is the total quantity of bowling

balls consumed, the price paid by consumer and the price received by the store. What

is the consumer surplus, the producer surplus, the tax revenue and the dead weight loss.

What is the share of the tax paid by the consumer and the one paid by the producer.

1 Chapter 2

From the exercises in the text, do problems 4,5 and 8. Chapter 14

From the exercises in the text, do problems 3,6 and 9. Chapter 15

From the exercises in the text, do problems 1,3 and 7. 2

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