Problem Set 2 PADM5006 1. Using supply and demand graphs depict: a) the consumer surplus associated with an efficient market b) depict the producer surplus with an efficient market c) the tax revenue with a tax d) the deadweight loss with a tax e) the government expenditure with a per unit subsidy f) the deadweight loss with a per unit subsidy 2. Suppose you are designing a study to help try to determine the likely costs of offering a 50% subsidy for large scale industrial solar panel roof installations. a) Make a simple demand and supply sketch that shows the likely costs to government at a given point in time. b) Make a list of at least 10 factors you would want to look at if you needed to make projections of the costs of such a subsidy in the future. In your list make note of why you think these things could matter. (Hint: what might affect the supply or demand for solar panels?) 3. Su and Katie are the only members of a small isolated economy with fixed endowments. Su has 50 sodas. Katie has 30 bags of popcorn. a) Draw an Edgeworth box for this small economy. b) Without trade where in the Edgeworth box is the current allocation? c) Assume Su and Katie both like both goods. Su would be willing to trade at a rate as high as 3 sodas for 1 bag of popcorn (up to a maximum of 15 sodas for 5 bags of popcorn). Katie is willing to trade at a rate as high as 1 bag of popcorn for 1 soda (up to a maximum of 5 bags of popcorn for 5 sodas). Is the current allocation Pareto efficient? Explain. 4. Explain the difference between a public good and a common property resource (or common pool resource)