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I need help answering these. I need to make sure that the answers are right Under the same setting as question 1 , assume that
I need help answering these. I need to make sure that the answers are right Under the same setting as question assume that prior to the imposition of the import fee, the
country annually consumed million short tons of coal, all domestically mined, at a price
of $ per short ton. How would the CBA of the import fee change if after imposition of the
import fee, the following circumstances are assumed to result from energy consumers
switching from crude oil to coal?
a Annual consumption of coal rises by million short tons, but the price of coal remains
unchanged. points
b Annual consumption of coal rises by million short tons and the price of coal rises to
$ per short ton. In answering this question, assume that the prices of other goods,
including coal, were not held constant in estimating the demand schedule for crude oil.
points
c Annual consumption of coal rises by million short tons and the price of coal rises to
$ per short ton. In answering this question, assume that the prices of other goods,
including coal, were held constant in estimating the demand schedule for crude oil. Also
assume that the demand schedule for coal is completely inelastic. points
d The market price of coal underestimates its marginal social cost by $ per short ton
because the coal mined in the country has a high sulfur content that produces smog
when burned. In answering this question, assume that the annual consumption of coal
rises by million short tons, but the price of coal remains unchanged. points Suppose that a country imports billion barrels of crude oil per year and domestically
produces another billion barrels of crude oil per year. The world price of crude oil is $
per barrel. Assuming linear demand and supply schedules, economists estimate the price
elasticity of domestic supply to be and the price elasticity of domestic demand to be
at the current equilibrium.
a Consider the changes in social surplus that would result from imposition of a $ per
barrel import fee on all crude oil imported into the country. Assume that the world price
will not change as a result of this import fee, but that the domestic price will increase by
$ per barrel. Also assume that only producers, consumers, and taxpayers within the
country have standing and that there will be an annual administrative cost of $ million
to impose and collect the new import fee. Using the information above regarding the
current equilibrium price and quantity as well as the elasticity estimates, calculate the
new total equilibrium quantity of crude oil demanded based on the import fee. points
b Using the total equilibrium quantity from part a find the amount of that total quantity
that will be produced and supplied by domestic producers and the amount of the total
quantity imported from foreign producers. points
c Using your calculations from parts a and b estimate the annual social net benefits of the
import fee by calculating the changes in consumer and producer surplus as well as
changes in tax revenue. Does your estimate imply that the import fee should be
implemented? Why? points
d Economists have estimated that the marginal excess burden of taxation in the country is
Reestimate the social net benefits assuming that percent of the increase in
producer surplus is realized as tax revenue under the existing tax system. In answering
this question, assume that increases in tax revenues less the cost of administrating the
import fee are used to reduce domestic taxes. points
Hint: The taxes revenue collected through import fee and producer surplus means less
taxes needs to be collected using other distortionary taxes
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