2. The supply curves of three branches of Great Power are given by the following equations: Where Q is the quantity (in 1000s of electric
2. The supply curves of three branches of Great Power are given by the following equations:
Where Q is the quantity (in 1000s of electric kilowatts) supplied, and P is the price per kilowatt.
The demand curves of three companies that consume electricity from the three branches of Great Power are given by the following equations:
i. Q1 = 4000 -2P
ii. Q2 = 3000 - 3P
iii. Q3 = 600 - 2P
L. How do consumer and producer surpluses change due to the subsidy?
N. As a public manager, advise the government about whether or not to keep/increase/decrease the subsidy. Base your advice on the criterion of (i) allocative efficiency and (ii) the elasticity of demand and supply curves in the graph.
New Problem set 1 PP... e supp y curves 0 t ree -ral1c es 0 reat owe! are given Ivt e o owmg equations: Where Q is the quantity (in 1000s ofelectric kilowatts) supplied. and P is the price per kilowatt. The demand curves of three companies that consume electricity from the three branches of Great Power are given bythe following equations: i. 01 = 4000 4;: ii. Q1 = 3000 - 3P iii. 03 = 600 2? A. Provide both graphical and algebraic (equation) depictions of the market supply (the combined supply of the three branches} of electric kilowatts. Market supply-Os 05-01mm! IMZPSNd-ZSPlm-l-ZP QF-1700t6.5P B. How many electric kilowatts are supplied in the market if the market price is $150 per kilowatt? Market price-150 c. How many electric kilowatts are supplied by each of the three branches of Great Power if the market price is $150 per kilowatt? Market price -15tI mzomziuoinmo n2-5m+2.5(150)-125 Q3-1M02(150)-7w D. Provide both graphical and algebraic depictions of the market demand {tile combined demand of the four consumers) for electric kilowatts. warez-03 m2P93m-BWZP O-76m-7P ozmsomzsusmwns o31m211so)-7oo D. Provide both graphical and algebraic depictions of the market demand {the combined demand of the four consumers) for electric kilowatts. on-tmozma mozmsoooavosooour Qd-7600-7P Price 055 . 71 7000 Quantity E. Based on the market supply and demand you calculated In (A) and (D), what are the equilibrium price and quantity of electric kilowatts? car-op -1700+6.5P-7600-7P 13.5mm P-saa.sa ocean-7538.88) Q=27TI .77 F. Calculate the consumer surplus and the producer surplus, and show the results in the graph. Suppose now that the government introduces a tax of $30 per kilowatt to discourage Great Power from supplying electricity from coal and petroleum. Using the same graph as for 2A to 2F, answer the following questions. Price 1085.7 688 88 , 261,53 277.77 '1'" "my Consumer Surplus= K X39633 X 277.77 =551151.23 Producer Surplus= is X213.675 X 2777.77 =593540.00 G. How much revenue does the government raise with the tax?. Tax lievenuem'ttoo Q5: -17DD+6.5P QD=7600-7P When government imposes a tax of $30 per kilowatt to discourage Great Power from supplying electricity from coal and petroleum then the price of supply becomes: Ps= P-3O This changes the market supply curve to: Q'5=-1700+6.5(P-30) u, >=-1 mower-15: Q'S=-1895+6.5P QD=Q'5 7600-7? = -1395+6.5P 7600+1395 = 6.5P+7P 9495 = 13.5? P= 703.33 qo=7soo7I70333i QD=2676.67 Equilibrium price and quantity after-tax are 70333 and 2676.67 Tax Revenue=Tax AmountXEquilibrium Quantity Tax Revenue=3W2676.67 Tax Revenue=$80,300 The government collects tax revenue of $80,300 by imposing a 530 tax on electricity. H. How do consumer and producer surpluses change due to the tan? Net deaease In Consumer Surplus after Tait- $39,400 Net decrease In Producer Surplus after Tax 8 $42,415.28 Consumer Surplus before Tax = P+Q+R Consumer Surplus before Tar-214108571-688.88)x2777.78 Consumer Surplus before Tar-$551,153.22 Producer Surplus before Tax = S+T+U Producer Surplus after Tax=21x(688.88-261.54)x2777.78 Producer Surplus after Tax=$593,528.25 The market for electricity moves to point E' after tax Net decrease in Producer Surplus after Tax: $593,528.25 - $551,112.97 Net decrease in Producer Surplus after Tax: $42,415.28 I. what Is the deadweight loss associated with the tax? Deadweight loss (DWLI is the loss in efficiency due to imposition of tax and it is shown by the blue shaded region in the above triangle. DWL created due to imposition of tax is calculated below: DWL=21x30x(2777.78-2676.67) OWL-$1516.65 I. As a public manager, advise our society and our government about whether or not to keep/increaseldecrease the tax. Base your advice on the criterion of (I) allocative efciency and (II) the elasticity of demand and supply curves in the graph. The government should decrease the tax because this created allocative inefficiency in the market i.e. resources are not fully utilized which decreases the total economic output of the country and the economy is not producing at its socially optimum level. The Elasticity of Demand is 1.74 and the elasticity of supply is 1.61 which means that supply is more inelastic. This means that more tax burden is passed on to the seller but there is no huge difference between the tax burden faced by producer and consumer. Both producer and consumer have elastic supply and demand which means a change in price causes a large change in quantity demanded and supplied. Tax=530 Quantity 2676.67 277.77 I: u-... _..-|. 1.... IL- --..____._. ..___J -_ .L- ....|...x.|..-: 11 of 12 DO - 7P b.or + /P = /600 + 1570 13.5P = 9170 P= 679 1570 + 6.5 x 679 -1570 + 4413.5 = 2843.5 kilowatt no. of units electricity produced before subsidy =2777 Difference between the quantity supplied, 2843 -2777 66 Units more produced when they have subsidized. 20 dollars per unit. 66 X 20 = 1320 dollars, L. How do consumer and producer surpluses change due to the subsidy? M. What is the deadweight loss associated with the subsidy? 7600 - 7P = -1700 + 6.5P = 7600 + 1700 = 6.5P + 7P = 9300/13.5 = 13.5P/13.5 = P = 688.89 2,777.77 Qd = 7600 - 7P = 7600 - 7(688.89) = 2,777.77 Qs = -1700 + 6.5P = -1700 + 6.5(688.89) = 2,777.78 (subsidy) = -1700 + 6.5(p+20) 7600 - 7P = -1700 + 6.5(p+20) => 7600 - 7P = -1700 + 6.5P + 130 = 9,170/13.5 = 13.5P/13.5 = P = 679.26 Qd = 7600 - 7(679.26) = 7600 - 4,754.82 = 2,845.18 Qs = -1700 + 6.5(699.26) = -1700 + 4,545.19 = 2,845.19 Equilibrium quantity given the subsidy is 2,845.185 2,845.185 - 2,777.77 = 67.415 Area of a triangle = 1/2 (base * height) Deadweight loss = 1/2 (67.415 * 20) = 674 The deadweight loss from this policy loss of about $674 N. As a public manager, advise the government about whether or not to keep/increase/decrease the subsidy. Base your advice on the criterion of (i) allocation efficiency and (ii) the elasticity of demand and supply curves in the graph
