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CH9b Practice

The document discusses various economic scenarios involving taxes, subsidies, and their effects on equilibrium, consumer surplus (CS), producer surplus (PS), welfare, and deadweight loss (DWL). It includes specific examples such as the demand and supply curves for wheat, the impact of subsidies on rose producers, and the implications of tariffs on shrimp imports from China and Vietnam. Additionally, it examines the effects of trade agreements like NAFTA on corn prices and welfare in Mexico due to U.S. subsidies.

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Minh Nguyễn Mai Bảo
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109 views1 page

CH9b Practice

The document discusses various economic scenarios involving taxes, subsidies, and their effects on equilibrium, consumer surplus (CS), producer surplus (PS), welfare, and deadweight loss (DWL). It includes specific examples such as the demand and supply curves for wheat, the impact of subsidies on rose producers, and the implications of tariffs on shrimp imports from China and Vietnam. Additionally, it examines the effects of trade agreements like NAFTA on corn prices and welfare in Mexico due to U.S. subsidies.

Uploaded by

Minh Nguyễn Mai Bảo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Ch9b after class practice

5.3 The initial equilibrium is e, where the linear supply curve intersects the linear demand curve. Show the
welfare effects of imposing a specific tax t. Now suppose the demand curve becomes flatter, but still
goes through point e, so that it is more elastic at e than originally. Discuss how the tax affects the
equilibrium, CS, PS, welfare, and DWL differently than with the original demand curve.

5.4 Suppose that the demand curve for wheat is Q = 100 - 10p and that the supply curve is Q = 10p. What
are the effects of a subsidy (negative tax) of s = 1 per unit on the equilibrium, government subsidy
cost, CS, PS, welfare, and DWL?

*5.5 Suppose that the government gives rose producers a specific subsidy of s = 11¢ per stem. (Figure 9.4
shows the original demand and supply curves.) What is the effect of the subsidy on the equilibrium
prices and quantity, consumer surplus, producer surplus, government expenditures, welfare, and
deadweight loss?

5.7 What is the welfare effect of an ad valorem sales tax, v, assessed on each competitive firm in a market?

6.6 In 2013, the U.S. government claimed that China and Vietnam were dumping shrimp in the United
States at a price below cost, and proposed duties as high as 112%. Suppose that China and Vietnam
were subsidizing their shrimp fisheries. In a diagram, show who gains and who loses in the United
States (compared to the equilibrium in which those nations do not subsidize their shrimp fisheries).
The United States imposed a 10.17% antidumping duty (essentially a tariff) on shrimp from these and
several other countries. Use your diagram to show how the large tariff would affect government
revenues and the welfare of consumers and producers.

6.7 Show that if the importing country faces an upward-sloping foreign supply curve (excess supply curve),
a tariff may raise welfare in the importing country.

6.8 Given that the world supply curve is horizontal at the world price for a given good, can a subsidy on
imports raise welfare in the importing country? Explain your answer.

6.9 After Mexico signed the North American Free Trade Agreement (NAFTA) with the United States in 1994,
corn imports from the United States doubled within a year, and today U.S. imports make up nearly
one-third of the corn consumed in Mexico. According to Oxfam (2003), the price of Mexican corn fell
more than 70% since NAFTA took effect. Part of the reason for this flow south of our border is that the
U.S. government subsidizes corn production to the tune of $10 billion a year. According to Oxfam, the
2002 U.S. cost of production was $3.08 per bushel, but the export price was $2.69 per bushel, with the
difference reflecting an export subsidy of 39¢ per bushel. The United States exported 5.3 metric tons.
Use graphs to show the effect of such a subsidy on the welfare of various groups and on government
expenditures in the United States and Mexico.

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