5. Suppose that a market is described by the following supply and demand equations: QS=2P QD=300-P a. Solve for the equilibrium price and the equilibrium quantity. (2 ptS) b. Suppose that a tax ofT 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 ptS) 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. [5 pts) d. The deadweight loss of a tax is the area of the triangle between the supply and demand curves. Solve for the deadweight loss as a function of T. Graph this relationship for T between 0 and 300 [5 pts) e. The government now levies a tax on this good of Rm; 200 per unit. Is this a good policy? Why or why not? Can you propose a better policy? (5 pts; min 100 words] 6. Suppose that the Long-Life Health Insurance Firm charges $5,000 annually for a family insurance policy. An advisor suggests that the company raise the annual price to $6,000 to increase its prots. 1f the firm followed this suggestion, what economic problem might arise? Would the rm's pool of customers tend to become more or less healthy on average? Would the company' s profit necessarily increase? [10 pts; min 150 words) 3. Below are some data from the land of rice and squash: Price of Quantity of Price of Quantity of Rice Rice Squash Squash 2019 $1 100 gts. $2 50 gigs, 2020 $1 200 $2 100 2021 $2 200 $4 100 a. Compute nominal GDP, real GDP, and GDP deator for each year, using 2019 as the base year. (7 pts) b. Compute the percentage change in nominal GDP, real GDP, and GDP deator in 2020 and 2021 from the preceding year. For each year, identify the variable that does not change. Explain in words why your answer makes sense. (10 pts] c. Did economy well-being rise more in 2020 or 2021? Explain. (5 pts; min 50 words) 4-. Suppose the government borrows 31113, 100 billion more next year than this year. a. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall? (3 pts; min 20 words] b. What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the Pm; 100 billion of extra government borrowing. (5 pts; min 50 words) c. How does the elasticity of supply of loanable funds affect the size of these changes? (5 pts; min 50 words) d. How does the elasticity of demand for loanable funds affect the size of these changes? (5 pts; min 50 words) e. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the effects you discussed in parts (a) and (b)? (8 pts; min 100 words) 1. Theodore Roosevelt once said, \"There is no moral difference between gambling at cards or in lotteries or on the racetrack and gambling in the stock market.\" What social purpose do you think is served by the existence of the stock market? (10 pts; min 150 words] 2. Consider the market for rubber bands. a. If this market has very elastic supply and very inelastic demand, how would the burden of a tax on rubber bands be shared between consumers and producers? Use the tools of consumer surplus and producer surplus in your answer. [6 pts; min 80 words) b. If this market has very inelastic supply and very elastic demand, how would the burden of a tax on rubber bands be shared between consumers and producers? Contrast your answer with your answer to part [a]. (6 pts; min 80 words)
