7 The federal government decides that Australia-should reduce air pollution by reducing its use of petrol. The government imposes a $0.50 tax for each litre of petrol sold. a Should this tax be imposed on producers or consumers? Explain carefully using a supplyand-demand diagram. b if the demand for petrol were more elastic, would this tax be more effective or less effective in reducing the quantity of petrol consumed? Explain using both words and a diagram. c Are consumers of petrol helped or hurt by this tax? Why? d Are workers in the oil industry helped or hurt by this tax? Why? 10 A market is described by the following supply and demand curves: 05 = 2P QD = 300 P a b Solve forthe equilibrium price and quantity. if the government imposes a price ceiling of $90, does a shortage or surplus (or neither) develop? What are the price, quantity supplied, quantity demanded and size ofthe shortage or surplus? If the government imposes a price oor of $90, does a shortage or surplus (or neither) develop? What are the price, quantity supplied, quantity demanded and size ofthe shortage or surplus? Instead of a price control, the government levies a tax on producers of $30. As a result, the price paid by consumers PC is $30 more than the price received by sellers P5. (In other words, PC = l35 + 30.) Does a shortage or surplus (or neither) develop? What are the prices paid by buyers and received by sellers, quantity supplied, quantity demanded and size of the shortage or surplus? 4 It is a hot day, and Bert is very thirsty. Here is the value he places on a bottle of water: Value ofsecond bottle $4 Value of fourth bottle $2 a From this information, derive Bert's demand schedule. Graph his demand curve for bottled water. b If the price of a bottle of water is $4.50, how many bottles does Bert buy? How much consumer surplus does Bert get from his purchases? Show Bert's consumer surplus in your graph. c If the price falls to $3.50, how does quantity demanded change? How does Be rt's consumer surplus change? Show these changes in your graph. 5 Ernie owns a water pump. Because pumping large amounts of water is harder than pumping small amounts, the cost of producing a bottle of water rises as he pumps more. Here is the cost he incurs to produce each bottle of water: Cost of second bottle $3 Cost of fourth bottle $5 a From this information, derive Ernie's supply schedule. Graph his supply curve for bottled water. b If the price of a bottle of water is $2.50, how many bottles does Ernie produce and sell? How much producer surplus does Ernie get from these sales? Show Ernie's producer surplus in your graph. c If the price rises to $3.50, how does quantity supplied change? How does Ernie's producer surplus change? Show these changes in your graph.8 Hotel rooms in Smalltown go for $100, and 1000 rooms are rented on a typical day. a To raise revenue, the mayor decides to charge hotels a tax of $1 0 per rented room. After the tax is imposed, the going rate for hotel rooms rises to $108, and the number of rooms rented falls to 900. Calculate the amount of revenue this tax raises for Smalltown and the deadweight loss ofthe tax. (Hint The area of a triangle is V2 x base x height.) b The mayor now doubles the tax to $20. The price rises to $1 16, and the number of rooms rented falls to 800. Calculate tax revenue and deadweight loss with this larger tax. Are they double, more than double or less than double? Explain