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2) The Canadian Cheese Market (15 marks] The Canadian dairy sector operates under a supply management system based on planned domestic production, administered pricing and dairy product import controls. Assume that the domestic demand for Canadian cheese can be defined by a demand curve Qd = 65 -0.5P and the domestic supply for Canadian cheese can be defined by the supply curve P = 25 + 3Qs. a) What is the equilibrium quantity and price? b) Suppose that cheese can be supplied internationally at a price P=$46. Illustrate the free mar the free market trade graphically and compute the amount of cheese supplied by domestic producers and imported by international producers. c) What is the producer surplus of domestic producers? d) If the Canadian government decides to impose a $6 tariff on all units of imported goods, calculate the domestic producer's surplus, the consumer surplus, the government revenue, the deadweight loss that is generated, and the new quantity of cheese that is being imported that results.Domestic Supply + World Price New Consumer Surplus World Price Price of Wine New Producer Surplus Quantity of Wine lose win Because of this change in the world price, consumers , producers , and Canada as a whole is off. Grade It Now Cor MacBook Pro8. To fully understand how taxes affect economic well-being, what must we do? assume that economic well-being is not affected if all tax revenue is spent on goods and services for the Canadian public b. know the dollar amount of all taxes raised in the country each year C. compare the reduced welfare of buyers and sellers to the amount of government revenue raised d. compare the expenditures of the provincial governments with that of the federal govern- ment 5. At the equilibrium price, which buyers will purchase the good? a those who value the good at more than the price b. those who value the good at less than the price c. those who have the money to buy the good d. those who consider the good a necessity 6. Orange juice and apple juice are substitutes. Suppose bad weather sharply reduced the orange harvest. What would the impact be? a increase consumer surplus in the market for orange juice but decrease producer surplus in the market for apple juice b. increase consumer surplus in the market for orange juice and increase producer surplus in the market for apple juice c. decrease consumer surplus in the market for orange juice but increase producer surplus in the market for apple juice d. decrease consumer surplus in the market for orange juice and decrease producer surplus in the market for apple juice 7. What will result if production is moved from a high-cost producer to a low-cost producer? a lower total surplus b. higher total surplus c. lower producer surplus d. higher producer surplus but lower consumer surplus 15. What does the Laffer curve do? a It relates income tax rates to total income taxes collected. b. It relates income to unemployment It relates tax rates to deadweight welfare losses. It relates government welfare payments to the birth rate.Question #3: ADI-AS Model In Points] When the stock market risesI there is an increase in household wealth and consumers feel more confident about the economy and as a result consumption increases. {a} Assume that the US. economy was initially at its potential output level { 17 }. Graphically illustrate using the ASAD modgl the effect of higher consumption levels on the US. economy. He sure to label the axes, curvesI use arrows to show shifts in curves. and market the equilibrium points: \"A\" for initial equilibrium; \"E\" for the shortvrun equilibrium; \"C\" for the longvnin equilibrium. [8 Points] {b} Using your graphs from Part {a} determine what would happen to the following variables in the short-run relative to their initial levels. For each of the variables state whether the variables INCREASE, DECREASE or REMAIN UNCl-IANGED. No explanation is required. [3 Points] {i} Output {iii} Unemployment {ii} Price Level {iv} Consumption {c} Using your graphs from Part {a} determine what would happen to the following variables in the long-run relative to their initial levels. For each of the variables state whether the variables INCREASE, DECREASE or REMAIN UNCHANGED. No explanation is required. [3 Points] {i} Output {iii} Unemployment {ii} Price Level {iv} Consumption (12 points} Consider the payoff matrix below. The players make their choices simultaneously and without communication between them. The game will be played only once. Each player is aware of the whole payoff matrix. B Firm B A Raise P Hold P Cut P Raise P 20 30 40 Firm A 2D SCI 20 Hold P 4E! 30 5E] 3D 40 40 Cut P '10 2E! 30 2D SCI 10 a. If Firm A decides to raise its price and Firm B decides to cut its price, what is Firm B's payoff? b. Does Firm A have a dominant strategy? If so, what is it? c. Does Firm B have a dominant strategy? If so, what is it? d. Which option raise, hold, cut should Firm A choose? e. Which option should firm B choose? f. Is there a Nash equilibrium in this game? If so, which outcome is it? (Describe the outcome by giving A's option and B's option.) (4 points} How many Nash equilibria could there be, at most, in a game with a 3 x 5 payoff matrix? (El points} Consider the payoff matrix below. Two firms are thinking about offering a new model of their product. There is not enough demand for both firms to have good sales if they both offer the new model. a. What is a value of X that will make this game a prisoner's dilemma prob em? b. As a prisoner's dilemma problem, which outcome is the dominant strategy equilibrium? c. As a prisoner's dilemma problem, which outcome would the firms choose if they could collude? (Assume that the two firms can talk to each other, but they cannot exchange funds for each other's cooperation.)
