Microeconomics Assignment: Questions and Answers

Running Head: MICROECONOMICS ASSIGNMENT
Microeconomics Assignment
Questions and Answers

MICROECONOMICS ASSIGNMENT Page 1 of 11
Table of Contents
PART 1...................................................................................................................................................2
Question 1.........................................................................................................................................2
Question 2.........................................................................................................................................3
PART 2...................................................................................................................................................4
Question 1.........................................................................................................................................4
Question 2.........................................................................................................................................7
Question 3.........................................................................................................................................7
Question 4.........................................................................................................................................7
Question 5: Bonus Question..............................................................................................................8
Question 6: Another Bonus Question................................................................................................9
References...........................................................................................................................................10

MICROECONOMICS ASSIGNMENT Page 2 of 11
PART 1
Question 1
a. It is the difference between the reservation price or the price that he is willing and able to
pay and the amount he actually pays for the commodity or the prevailing market price
(Mankiw, 2017).
b. It is the price at which the supplier is willing to supply his produce over the amount he
actually receives for the commodity or the prevailing market price.
c. Tax revenue is the amount the government receives by imposing a tax in the economy. A
tax can be levied on income, commodities or the profits of a firm. It reduces both
consumer and producer surplus and creates dead-weight loss in the society. Dead-weight
loss neither goes to the consumer and producer, nor the government. It leads to
inefficiency in the market.
d. It refers to the inefficiency created by imposition of tax or grant of subsidy. It is the
amount the consumer has to pay in excess of the taxes (Aure, 2012). It can be describes as
the inefficiency arising out of allocation or the excess burden on the economy. It leads to
disequilibrium in the economy and wastage of resources.
Figure 1: Before tax imposition
Consumer
Surplus
Demand
Curve
Quantity
Price
E
Q
*
O
Supply
Curve
P* Producer
Surplus

Consumer
Surplus
Producer
Surplus
Dead-weight
Loss
MICROECONOMICS ASSIGNMENT Page 3 of 11
Figure 2: After tax imposition
Question 2
a. At equilibrium quantity demanded is equal to the quantity supplied.
All quantities are in 1000.
QD = QS
-P +23 = 2P -10
3P = 33
P* = $11 (equilibrium price)
Q* = 12 (equilibrium quantity)
b. On y-axis, demand curve intersects at:
QD = -P + 23
P = 23
Base = Q* = 12 (equilibrium quantity)
Height = 23 – P* = 23- 11 = 12
Consumer Surplus (before tax) = ½ *base*height
= ½ * 12 * 12
= 72 unit square
c. On y-axis, supply curve intersects at:
QS = 2P – 10
P = 5
Q*QO
Tax
Supply
Curve
Demand
Curve
E
PS
PB
Price
Quantity
Tax
Revenue
PC: Price paid by Buyer
PS: Price received by Seller