Use this S D table to answer the questions The numbers are nice and round, but similar to current equilibrium price and quantity for the US right now Demand for gasoline (million gallons per day) Price per gallon Supply of gasoline (million gallons per day) Surplus ( ) or Shortage ( ) 370 $2 100 360 $2 50 150 350 $3 200 340 $3 50 250 330 $4 300 320 $4 50 350 a) Complete the table with the size of surpluses and shortages Use your graph to find the equilibrium price and quantity and calculate total revenue at the equilibrium b) Graph the Supply and Demand curves on graph paper, label everything and use at least half a sheet Shade in the areas of Consumer Surplus and Producer Surplus c) Evaluate a government price ceiling at $3 per gallon of gasoline Explain who would be helped and who would be hurt, with numbers Show the price ceiling on the graph and connect your explanations to shaded areas on the graph Use colors or label areas with numbers, just make it clear who benefits from the policy, who is harmed and use the term deadweight loss as appropriate Problem 2 (15 points) Sales Tax Incidence Draw a new graph using the fictional data from 1 make sure it covers most of a page ( choose a vertical scale that will leave room for the supply shift when the tax is imposed in part b) On this problem, you will analyze a tax on gasoline Start by analyzing the tax using the graphical method (a d), then use the elasticity method (e h) Its fine if your visual estimates based on the graph dont exactly match the values you get using elasticities Demand for gasoline (million gallons per day) Price per gallon Supply of gasoline (million gallons per day) 370 $2 100 360 $2 50 150 350 $3 200 340 $3 50 250 330 $4 300 320 $4 50 350 Whats the equilibrium price and quantity of gasoline Suppose the government imposed a tax of $1 per gallon Show the effect of the tax increase on the graph Make your graph big and graph carefully Extend both curves if you need to Whats the new price that consumers will pay How much will producers receive after the tax How much of the $1 tax will be paid by consumers Producers Now use the elasticity method to answer the same questions Your answers probably wont be exactly the same as the answers you got from the graph, but they should be somewhat close Calculate the price elasticity of demand and supply using the midpoint formula Use $4 as P 1 and $4 50 as P 2 Show your work Using the elasticities, how much of the $3 tax will be paid by consumers How much will be paid by producers Find the new price that consumers will pay How much will producers receive per car after the tax How much tax revenue will the government collect Shade in the tax revenue paid by consumers and producers on your graph for full credit Problem 3 Interest Rate Cap Read this press release from the Office of the Governor on a limit on interest rates in New Mexico Based on what youve learned in this class, discuss who may benefit and who may be harmed by this law What additional information would you need in order to analyze this law One or two good paragraphs should be enough room to explain the key points Feel free to do some additional reading, but you should be able to identify the key points from what youve already learned in this class If you do want to do some additional research, heres a good quality working paper on the topic from the World Bank (42 pages, but the abstract and executive summary are just 4 pages at the start) Heres an easier article from NerdWallet and the AP Problem 4 (5 points) Gasoline and Negative Externalities Since were using gasoline as our example product on this exam, its important to touch on the concept of externalities from last week (This may be a good time to make sure youve done the reading and watched the videos on externalities) Whats a negative externality What negative externalities are created when people choose to use gasoline When negative externalities exist, is the market outcome (EP and EQ) efficient from societys point of view Do private markets tend to produce too much or too little of products that create negative externalities

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Use this S-D table to answer the questions. The numbers are nice and round, but similar to current equilibrium price and quantity for the US

Use this S-D table to answer the questions. The numbers are nice and round, but similar to current equilibrium price and quantity for the US right now.

Demand for gasoline (million gallons per day)	Price per gallon	Supply of gasoline (million gallons per day)	Surplus (+) or Shortage (-)
370	$2	100
360	$2.50	150
350	$3	200
340	$3.50	250
330	$4	300
320	$4.50	350

a) Complete the table with the size of surpluses and shortages. Use your graph to find the equilibrium price and quantity and calculate total revenue at the equilibrium.

b) Graph the Supply and Demand curves on graph paper, label everything and use at least half a sheet. Shade in the areas of Consumer Surplus and Producer Surplus.

c) Evaluate a government price ceiling at $3 per gallon of gasoline. Explain who would be helped and who would be hurt, with numbers. Show the price ceiling on the graph and connect your explanations to shaded areas on the graph. Use colors or label areas with numbers, just make it clear who benefits from the policy, who is harmed and use the term deadweight loss as appropriate.

Problem 2 (15 points) Sales Tax Incidence

Draw a new graph using the fictional data from #1 make sure it covers most of a page. (choose a vertical scale that will leave room for the supply shift when the tax is imposed in part b)

On this problem, you will analyze a tax on gasoline. Start by analyzing the tax using the graphical method (a-d), then use the elasticity method (e-h). Its fine if your visual estimates based on the graph dont exactly match the values you get using elasticities.

Demand for gasoline (million gallons per day)	Price per gallon	Supply of gasoline (million gallons per day)
370	$2	100
360	$2.50	150
350	$3	200
340	$3.50	250
330	$4	300
320	$4.50	350

Whats the equilibrium price and quantity of gasoline?

Suppose the government imposed a tax of $1 per gallon. Show the effect of the tax increase on the graph. Make your graph big and graph carefully. Extend both curves if you need to.

Whats the new price that consumers will pay? How much will producers receive after the tax?

How much of the $1 tax will be paid by consumers? Producers?

Now use the elasticity method to answer the same questions. Your answers probably wont be exactly the same as the answers you got from the graph, but they should be somewhat close.

Calculate the price elasticity of demand and supply using the midpoint formula. Use $4 as P₁ and $4.50 as P₂. Show your work.

Using the elasticities, how much of the $3 tax will be paid by consumers? How much will be paid by producers.

Find the new price that consumers will pay?

How much will producers receive per car after the tax?

How much tax revenue will the government collect? Shade in the tax revenue paid by consumers and producers on your graph for full credit.

Problem 3 Interest Rate Cap

Read this press release from the Office of the Governor on a limit on interest rates in New Mexico. Based on what youve learned in this class, discuss who may benefit and who may be harmed by this law. What additional information would you need in order to analyze this law?

One or two good paragraphs should be enough room to explain the key points. Feel free to do some additional reading, but you should be able to identify the key points from what youve already learned in this class.

If you do want to do some additional research, heres a good quality working paper on the topic from the World Bank. (42 pages, but the abstract and executive summary are just 4 pages at the start) Heres an easier article from NerdWallet and the AP.

Problem 4 (5 points) Gasoline and Negative Externalities

Since were using gasoline as our example product on this exam, its important to touch on the concept of externalities from last week. (This may be a good time to make sure youve done the reading and watched the videos on externalities)

Whats a negative externality? What negative externalities are created when people choose to use gasoline?

When negative externalities exist, is the market outcome (EP and EQ) efficient from societys point of view? Do private markets tend to produce too much or too little of products that create negative externalities?

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The question is quite detailed and multilayered Lets break it down and address each component carefully Problem 1 Price Ceiling a Complete the SD Table To fill in the Surplus or Shortage column calcul... blur-text-image