16. Gaston buys ear pods for PhP1,200 and gets a consumer surplus of PhP800. a. What is his willingness to pay? (1 point) b. If he had bought the ear pods on sale for PhP900, what would be his consumer surplus? (1 point) c. If the price of ear pods were PhP2,500, what would be his consumer surplus? (1 point) 17. It is a hot day. Moira is thirsty. Here is the value she places on a bottle of water. Number of bottles Value in Php First 15 Second 12 Third 9 Fourth a. From this information, derive Moira's demand schedule. Graph his demand curve for bottled water. (2 points) b. If the price of a bottle of water is PhP40, how many bottles does Moira buy? How much consumer surplus does Moira get from his purchases? Show Moira's consumer surplus in your graph. (3 points) C. If the price falls to PhP20, how does quantity demanded change? How does Moira's consumer surplus change? Show these changes in your graph. (3 points) 18. The cost of producing flat-screen TVs have fallen over the past decade. Let's consider some implications of this fact. a. Draw a supply-and-demand diagram to show the effect of falling production costs on the price and quantity of flat-screen TVs sold. (2 points) b. In your diagram, show what happens to consumer surplus and producer surplus. (1 point) c. Suppose the supply of flat-screen TVs is very elastic. Who benefits most from falling production costs - consumers or producers of these TVs. (1 point) 19. There are four consumers willing to pay the following amounts for haircuts: Gabriel Kenji Lana Liza PhP700 PhP200 PhP800 PhP500 There are four haircutting businesses with the following costs: Firm A Firm B Firm C Firm D PhP300 PhP600 PhP400 PhP20019. There are four consumers willing to pay the following amounts for haircuts: Gabriel Kenji Lana Liza PhP700 PhP200 PhP800 PhP500 There are four haircutting businesses with the following costs: Firm A Firm B Firm C Firm D PhP300 PhP600 PhP400 PhP200 Page 4 of G COBECON PROBLEM SET Each firm has the capacity to produce only one haircut. For efficiency, how many haircuts should be given? Which businesses should cut hair and which consumers should have their hair cut? How large is the maximum possible total surplus? (3 points)20. Suppose a technological advance reduce the const of making computers. a. Draw a supply-and-demand diagram to show what happens to price, quantity, consumer surplus, and producer surplus in the market for computers. (3 points) b. Computers and typewriters are substitutes. Use a supply-and-demand diagram to show what happens to price, quantity, consumer surplus, and producer surplus in the market for typewriters. Should typewriter producers be happy or sad about the technological advance in computers? (5 points) c. Computers and software are complements. Draw a supply-and-demand diagram to show what happens to price, quantity, consumer surplus, and producer surplus in the market for software. Should software producers be happy or sad about the technological advance in computers? (5 points) d. Does this analysis help explain why software producer Bill Gates is one of the world's richest men? (1 point) 21. The market for pizza is characterized by a downward-sloping demand curve and an upward-sloping supply curve. a. Draw the competitive market equilibrium. Label the price, quantity, consumer surplus, and producer surplus. Is there any deadweight loss? Explain. (5 points) b. Suppose that the government forces each pizzeria to pay a PhP1 tax on each pizza sold. Illustrate the effect of this tax on the pizza market, being sure to label the consumer surplus, producer surplus, government revenue, and deadweight loss. How does each area compare to the pre-tax case? (5 points) c. If the tax were removed, pizza eaters and sellers would be better off, but the government would lose tax revenue. Suppose that consumers and producers voluntarily transferred some of their gains to the government. Could all parties (including the government) be better off than they were with a tax? Explain using the labelled areas in your graph. (5 points) 22. After economics class one day, your friend suggests that taxing food would be a good way to raise revenue because the demand for food is quite inelastic. In what sense is taxing food a "good" way to raise revenue? In what sense is it not a "good" way to raise revenue? (2 points) 23. The government places a tax on the purchase of socks. a. Illustrate the effect of this tax on equilibrium price and quantity in the sock market. Identify the following areas both before and after the imposition of the tax: total spending by consumers, total revenue for producers, and government tax revenue. (5 points) b. Does the price received by producers rise or fall? Can you tell whether total receipts for producers rise or fall? Explain. (3 points) c. Does the price paid by consumers rise or fall? Can you tell whether total spending by consumers rises or falls? Explain carefully in relation to elasticity. If total consumer spending falls, does consumer surplus rise? Explain. (5 points)24. Hotel rooms in Smalltown go for PhP10,000, and 1,000 rooms are rented on a typical day. a. To raise revenue, the mayor decides to charge hotels a tax of PhP1,000 per rented room. After the tax is imposed, the going rate for hotel rooms rises to PhP10,800, and the number of rooms rented falls to 900. Calculate the amount of revenue this tax raises for Smalltown and the deadweight loss of the tax. The area of a triangle is 1/2 X base X height. (5 points) b. The mayor now doubles the tax to PhP2,000. The price rises to PhP11,600, and the number of rooms rented falls to 800. Calculate tax revenue and deadweight loss with this larger tax. Do they double, more than double, or less than double? Explain. (5 points) 25. Suppose that a market is described by the following supply and demand equations: Q: 5 2P QD 5 300 - P a. Solve for the equilibrium price and the equilibrium quantity. (2 points) b. Suppose that a tax of T is placed on buyers, so the new demand equation is QD = 300 - (P + T). Solve for the new equilibrium. What happens to the price received by sellers, the price paid by buyers, and the quantity sold? (3 points) c. Tax revenue is T X Q. Use your answer to part (b) to solve for tax revenue as a function of T. Graph this relationship for T between 0 and 300. (3 points) d. The deadweight loss of a tax is the area of the triangle between the supply and demand curves. Recalling that the area of a triangle is 1/2 X base X height, solve for deadweight loss as a function of T. Graph this relationship for T between 0 and 300. (Hint: Looking sideways, the base of the deadweight loss triangle is T, and the height is the difference between the quantity sold with the tax and the quantity sold without the tax.) (5 points) e. The government now levies a tax on this good of PhP200 per unit. Is this a good policy? Why or why not? Can you propose a better policy? (3 points)