Do consumers bear the entire burden of the tax
Econometrics
A) In the market above, suppose that government officials set the price at $60. Describe the resulting outcome.
B) In the market above, suppose that government officials set the price at $20. Describe the resulting outcome.
C) Suppose that the market (in the graph above) is initially in equilibrium. Assume that consumer preferences shift and people want more of this product, and, at the same time, producers get an improvement in technology which lowers their production costs. Describe the resulting impact on equilibrium price and quantity.
D) Suppose a supply increase causes the equilibrium to shift from the one above so that the equilibrium quantity changes from that in the diagram to an equilibrium quantity of 200. What is the elasticity of demand (using the initial-value method) along the above demand curve as you move from the original equilibrium point to a quantity of 200?
E) Based upon your answer in 7D), is the demand curve elastic or inelastic in this region? Briefly explain.
F) Based upon your previous answers, does the total revenue for producers in the market increase or decrease as the quantity moves from the original equilibrium point to 200 (assuming all goods are sold)? Briefly explain.
G) Suppose that the market (in the graph above) is initially in equilibrium. Assume that government officials impose a tax causing supply to intersect demand at $60. If the tax was $40, do consumers bear the entire burden of this tax?
