Exam 7: Taxation and Government Intervention

Demonstrate graphically and explain verbally how the size of a shortage created by a price ceiling is related to the elasticity of the supply and demand curves.

How are price ceilings similar to taxes on producers? How are price floors similar to taxes on consumers? How are both price ceilings and price floors different from taxes?

Define consumer surplus and producer surplus.

The United States currently imposes a tariff on imported sugar. How does the burden imposed on suppliers and consumers by this tariff relate to the relative elasticities for sugar? Explain. NOTE: Be sure to include supply and demand diagrams as part of your explanation and vary the elasticity of demand, keeping elasticity of supply constant.

Use the diagram below to compute the dollar value of the consumer and producer surplus.

Demonstrate graphically and explain verbally the cost to society of a tax of t per carton imposed on the sellers of cigarettes.

Demonstrate graphically and explain verbally how the problem of price controls differs in the short-run and the long run.

Define consumer surplus and producer surplus. Explain why the equilibrium price and quantity maximizes the sum of producer plus consumer surplus (the total surplus).

There are far more consumers of agricultural commodities than there are producers; but agricultural producers have consistently been able to get Congress to vote them subsidies at taxpayer expense and supply restrictions at the consumer's expense. How can the success of the agricultural lobby be explained by "the general rule of political economy"?

Demonstrate graphically and explain verbally how the incentive to restrict supply (and rent-seeking activities) by suppliers is stronger the less elastic the demand.

Use the diagram below to compute the dollar value of the consumer and producer surplus.

Define rent-seeking activities and give an example. Use agricultural price supports to demonstrate that the value of rent seeking is linked to elasticity.