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
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 