HADM 1410 Microeconomics for the Service Industry Spring 2024 Problem #3 Alexander This problem set is due Friday, March 29th 1. Assume that the federal government has decided to impose a tax on handguns. The market for handguns is currently at an equilibrium with the price per gun being $200 and the quantity exchanged being 40,000 guns per month. The elasticity of demand is 0.7 and the elasticity of supply is 2.3. The government plans on imposing a tax of $50 per gun, a. Use a diagram to indicate the situation in this market before the tax is imposed. Label the price consumers pay Pco, the price producers receive Ppo, the quantity supplied Qeo, and the quantity demanded Qco. b. In your diagram above, indicate the situation in this market after the imposition of the tax on guns. Label the price consumers pay P, the price producers receive Ppy, the quantity supplied Qp1, and the quantity demanded Qc|. Clearly indicate the amount of the tax (per unit) as well as the amount of revenue the government will collect from this tax. c. Calculate the amount of revenue the government will collect from this tax. What is the burden on consumers? What is the burden on producers? 2. To increase attendance at home games, the Cornell athletic department is considering a decrease in basketball ticket prices from $19 to $16. They currently sell 13,500 seats per game and the (price) elasticity of demand is 1.2. Assume that Big Red Coliseum can seat up to 20,000 people. What effect will this price decrease have on: a. the number of seats sold? b. the amount of revenue collected per game? 3. Assume that the state government is interested in subsidizing the local production of steel. The current price of steel is $1600 per ton and the government wants to provide a subsidy of $100 per ton. Assume that the elasticity of demand is 2, the short-run elasticity of supply is 2, and the long-run elasticity of supply is infinite. Furthermore, assume the equilibrium quantity exchanged (before the subsidy) is 3700 tons per month. a. Use a diagram to indicate the pre-subsidy situation in this market. Label the price consumers pay Pco, the price producers receive Ppo, the quantity supplied Qpo, and the quantity demanded Qcy. b. In your diagram above, indicate the short-run post-subsidy situation in this market. Label the price consumers pay Pc), the price producers receive Ppi, the quantity supplied Qr1, and the quantity demanded Qc1. c. In your diagram above, indicate the long-run post-subsidy situation in this market. Label the price consumers pay Pc2, the price producers receive Pp2, the quantity supplied Qr2, and the quantity demanded Qca. d. Clearly indicate in your diagram above the total amount of subsidy the government will have to provide in the long-run. Calculate this amount (I want an exact number), showing all work