Microeconomics Topic 2.

1 price
Demand L
x axis Quantity
Part 1: Check Your Understanding- Identify if each statement regarding the market for popcorn is true or false.
1. The demand for popcorn is determined by the number of producers that are willing and able to
produce popcorn.
2. A decrease in the price of popcorn will increase the quantity demanded of popcorn.
T
3. Popcorn consumers that experience diminishing marginal utility will be willing to pay lower prices for
more popcorn. T
4. An increase in the price of potato chips, a substitute for popcorn, will cause the demand curve for
popcorn to shift to the left. F
Part 2: Graph It- The demand schedule is
for a soda vending machine in a local park.
The data was compiled over several weeks
in the winter. Complete the following.
iso

É
5. Graph a demand curve for soda based on the
data in the demand schedule. 1.25

6. How will the data in the demand schedule

most likely change in the summer? Explain.

It willincrease as temperatures
rise andmore people go auatntit.to 50 48 50
to the park
Part 3: Practice- Show what happens to the demand curve for soda for each of the following scenarios.
7. The price of bottled water, a substitute, increases 8. The price of soda increases
Nochange in
Demand
price

Dilwedenmand
piggy's
D Quantity Quantity
9. A new study shows that drinking soda causes blindness 10. Soda is a normal good and incomes increase

price price i

Quantity
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 Microeconomics Topic 2.2
Supply
Part 1: Check Your Understanding- Complete the following.
1. Explain how the law of supply is related to the idea of opportunity cost.
Becauseasprices rise thequantityofthe supplies also rise
additional
2. Will an excise tax causetax
the supply curve to shift right or shift left? Explain your reasoning.

shiftless because thesupplier willprovide lessof a quantity

Part 2: Graph It- Assume you can produce and sell wallets made from duct tape. The supply schedule below shows
the price and quantity supplied. Complete the following.
price
3. Graph a supply curve for duct tape wallets 10.00
based on the data in the supply schedule.
700
4. Assume that it’s finals week and you need to
study for your exams. Explain how the data in 5.00
É
o
the supply schedule will most likely change.

ed TnEngse 3.00
III
Fetopke amefanta
arebusyandyouwon'thavethe 1.00
adequate timetosupplymorewallets
5 10 15 95
Part 3: Practice- Show what happens to the supply curve for soda for each of the following scenarios. Assume that
sugar is used to produce soda.
IFT
5. A hurricane destroys a sugarcane crop 6. A new company launches a new brand of soda

p
because demand
for old
jingo b

4
It

D D Q P
bi Q
7. A new machine helps refine sugar twice as fast 8. The price of soda increases

YY
i

b
M
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 Microeconomics Topic 2.3
Price Elasticity of Demand
Part 1: Practice- Assume that comic book store owners compiled data regarding the prices and quantities sold of the
following products. Use the information in the table to answer the questions.
on old
efficientwork Ttiegicient

ji s a Gimnasia
PMQi

1. Calculate the elasticity of demand coefficient for Avengers posters. 1ststep

125 IgnoreC
2. Which product has the most elastic demand? How can you tell?
e 60581 100 200
phineas andFerb tshirts makestheflattestcurve
Y oar 6 8
100 25
3. Which product has relatively inelastic demand? How can you tell?
Supermanmug coefficientisless than I 318 205 0.8
3rdstep write
4. Which product has unit elastic demand according to it’s elasticity of demand coefficient? coefficientin

Batman flashlights
5. Explain why store owners will likely not put Vintage Star Wars action figures on sale for $5.
Becauseits inelastic and youdecreasetheprice the sales will decrease
make lessmoneylearnnoprofit
6. Assume that one of the store owners lowered the price of Phineas and Ferb t-shirts to $16. Would this most likely
increase or decrease the owner’s total revenue? Explain. elastic I
Increasebecauseofthetotalrevenue test
Itrb
Part 2: Article Analysis- Read the excerpt from the 2018 article about a football stadium and complete the following.
“When the Atlanta Falcons announced the food prices at their new $1.5 billion stadium -- $2 hot dogs and sodas, $3
nachos... -- fans loved it….. The Falcons owner had made a calculated bet that what the organization lost in price
markup, it would recoup in volume -- fans would come earlier, stay longer and buy enough food to make up the
difference. About 6,000 more fans per game entered the stadium earlier than they did in 2016, and in general, the
venue sold as much food by the end of the first quarter of Falcons games as it did in full games in 2016. [Fans] also
bought more food -- sales were up 53 percent -- and each fan spent, on average, 16 percent more on concessions
(food and drinks). Atlanta’s pricing is a dramatic departure from standard prices in NFL stadiums. At $2, hot dogs at
Falcons home games cost less than half the league average $5, according to the 2016 Team Marketing Report.”
7. Explain why the success of the pricing strategy depended heavily on the elasticity of demand of the food and
drinks sold in the stadium.

8. If the price of food and drinks decreased by more than 53% and “sales were up 53 percent,” is the demand for
concessions in the stadium relatively inelastic, relatively elastic, or unit elastic? Explain.

9. Assume that the stadium owner decided to allow unaffiliated vendors to sell nachos inside the stadium. Would the
demand for nachos become more inelastic or more elastic? Explain your reasoning.

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 Microeconomics Topic 2.4
Price Elasticity of Supply
Part 1: Check Your Understanding- Complete the following.
1. Identify three factors that influence the elasticity of supply of any given product.
Highbarriers toalternative firms
entry fewinputs
Highprice of
2. How can Difficult to has perfectly inelastic supply? Use an example to support your answer.
produce
you tell if a good

By usingthe total revenue test or by calculatingtheelasticitycoefficient

Part 2: Article Analysis- Read the 2018 article excerpt regarding Caterpillar Inc. and complete the following.
“Orders for the mining machines and construction bulldozers made at this sprawling Caterpillar Inc. factory in central
Illinois have jumped, in general, three-fold over the past year (2018)….But meeting that boom in demand at the
world’s largest heavy equipment manufacturer is a challenge…This has extended the lead-time to deliver final
products to dealers. For instance, it takes more than eight months to get one model of its large engines into a
customer’s hands.”
3. Based on the information in this excerpt, do you think that the supply for new bulldozers is relatively inelastic or
relatively elastic? Explain your reasoning.

4. Assume that the price for mid-sized bulldozers increased from $250,000 to $300,000 and the quantity supplied
increased from 2,000 to 2,200. Calculate the price elasticity of supply coefficient. Show your work.

5. Assume that the price for dump trucks increased from $75,000 to $90,000 and the quantity supplied increased
from 3,000 to 3,600. Calculate the price elasticity of supply coefficient. Show your work.

Part 3: Article Analysis- Read the following article excerpt regarding the 2016 fidget spinner fad.
“Fidget spinners had been around for years, marketed as aids for kids with attention problems (a claim that has little
scientific backing). But they were never particularly popular. That changed last year (2016), after a rash of videos
appeared on YouTube featuring teenagers performing fidget-spinner tricks. That caught the attention of Chinese
factories, many of which have begun to employ squadrons of workers to monitor social media and Google Trends,
allowing them to jump on the next big consumer-product craze as soon as it starts materializing.”
6. In general, how does the rise of Chinese factories that monitor trends affect the elasticity of supply for toys?
Explain your reasoning.

7. After the fad ended, assume the price of fidget spinners decreased from $2.00 to $1.50 and the quantity supplied
decreased from 10,000 to 5,000. Calculate the price elasticity of supply coefficient. Show your work.

Part 4: Stretch Your Thinking- Complete the following.

8. The elasticity of demand for a product can be determined by analyzing the change in total revenue as a result of a
change in price. Explain why this method can’t be used to determine the elasticity of supply for a product.

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 Microeconomics Topic 2.5
Other Elasticities
Part 1: Check Your Understanding- Complete the following.
1. Identify two goods that likely have a cross-price elasticity of demand coefficient that is positive. Explain your
reasoning.

2. Identify a good that likely has an income elasticity of demand coefficient that is negative. Explain your reasoning.

3. Why would a business be interested in knowing the income elasticity of demand coefficient for their products?
Use an example to support your answer.

Part 2: Article Analysis- Read the article excerpt and complete the following.
“The U.S. average retail price per gallon of regular motor gasoline has fallen 28% from its 2014 peak of $3.70 per
gallon...to $2.68 per gallon. However, this price decline may not have much effect on automobile travel, and in
turn, gasoline consumption...EIA's Short-Term Energy Outlook (STEO) uses a price elasticity of -0.02 to estimate
and forecast consumption of motor gasoline, while also considering anticipated changes in travel demand and fuel
economy...Price elasticities can be difficult to interpret, as demand can change for reasons beyond changes in
fuel price, including changes in other economic factors.”
4. Is the demand for gasoline perfectly elastic, relatively elastic, unit elastic, relatively inelastic, or perfectly inelastic?
Use information from the article to support your answer.

5. According to this article, the price of gasoline would need to fall by what percent to increase gas consumption by
1%? Show your work.

6. Why is it difficult to calculate the precise elasticity of demand for gasoline? Explain using an example.

7. Suppose that a 20% decrease in the price of electric cars resulted in a 10% decrease in the quantity demanded of
gasoline. Calculate the cross-price elasticity of demand coefficient for electric cars and gas and identify if they are
substitutes or complements.

8. Suppose, instead, that a 10% decrease in the price of gas resulted in a 12% increase in the quantity demanded of
gasoline powered cars. Calculate the cross-price elasticity of demand coefficient for gas and cars and identify if
they are substitutes or complements.

9. Suppose incomes increased by 10% and that gasoline consumption increased by 20%. Calculate the income
elasticity of demand coefficient for gasoline and identify if it is a normal good or an inferior good.

10. Assume that the cross-price elasticity of demand coefficient between cars and planes is 0. Does this make them
substitutes, complements, or something else? Explain.

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 Microeconomics Topic 2.5
Other Elasticities
Part 3: Practice- Complete the following.
11. The price of good E increases by 10% and the quantity supplied increases by 20%. Calculate the price elasticity
of supply coefficient. Show your work.

Pe M10 Q M 20 2
12. Given your answer to question #11, is the supply for good E perfectly elastic, relatively elastic, unit elastic,
relatively inelastic, or perfectly inelastic? Explain how you determined your answer.
I relativelyelastic becauseit's greater than I
13. When the price of good C increases from $20 to $25 the quantity supplied increases from 100 to 105. Calculate
the price elasticity of supply coefficient. Show your work.

105561 0.25 100 25

14. Given your answer to question #13, is the supply for good C perfectly elastic, relatively elastic, unit elastic,
relatively inelastic, or perfectly inelastic? Explain how you determined your answer.

relatively inelastic 0.2541

15. Suppose that good O and good N are complements. If the price of good O increases by 10%, what will happen to
the demand curve of good N?
Pop 10 Demandgoes down curve shifts left
16. The price of good R rises by 10% and the quantity demanded of good O decreases by 20%. Calculate the
cross-price elasticity of demand between good R and good O. Show your work.
comfiements
PrP 10 Qo620 28 2
17. Given your answer to question #16, are good R and good O complements, substitutes, normal goods, or inferior
goods? Explain how you determined your answer.

complements because it refers to quantity and price

and it has a negative nfflasticity negativeis
18. Suppose that Avery’s income increased by 25% and his purchase of good C increased by 75%. Calculate the
income elasticity of good C. Show your work.

In 125 Qi 5 52 3
19. Given your answer to question #18, is good C a complement, substitute, normal good, or inferior good? Explain
how you determined your answer.
demand ispositive
Normalgood because the incomeelasticity of
20. Joel’s income increased by 25% and his purchase of good K decreased by 25%. Calculate the income elasticity of
good K. Show your work.

IN 25 Q 4254 25 1
21. Given your answer to question #20, is good K a complement, substitute, normal good, or inferior good? Explain
how you determined your answer.

Inferior good because the income elasticity was negative

22. Read the message created by the names of the goods above. What is the name of the last good?

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 Microeconomics Topic 2.6
Equilibrium & Consumer/Producer Surplus
Part 1: Article Analysis- Read the article excerpt and complete the following.
“Where do prices come from? The answer at first, seems obvious. The seller sets the price. But if you’ve ever
tried to sell anything, you know that it’s not really true. If you want to sell your house, yes, you’re free to write
whatever number you want on the listing. After all, every house is unique. So you just have to find one person
who loves your house...According to this mindset, you can ask a really high price for your house because all you
need is one person willing to pay that high price. But you’ll quickly find that if you choose a price that’s too high,
you won’t sell it, even if the person who happens to love your all-purple kitchen happens to walk through the door.
That person who loves your house, the one who is willing to pay $500,000, still won’t buy it if there’s a house
that’s almost as nice as yours but that’s selling for $300,000. People don’t pay what they’re willing to pay unless
they have to. When they have choices, they don’t have to. Competition protects the buyer. And it protects the
seller. You might be willing to sell your house for $100,000. But you won’t have to if there are similar houses
selling for $300,000.”
1. According to the excerpt, who determines the price in a market? Explain.

2. Explain what prevents sellers from only charging outrageously high prices for goods and services?

3. Explain what prevents buyers from only offering outrageously low prices for goods and services?

4. Fully explain how competition “protects” both buyers and the sellers.

5. Do you think the invention of the internet has made the real estate market more efficient or less efficient? Explain
your reasoning.

6. Assume that you sold your house for $300,000 to a buyer that was willing to pay $400,000. Calculate the
consumer surplus and producer surplus assuming that you were willing to sell your house for $250,000. Show
your work.

7. In the transaction in question #6, did the buyer win, did the seller win, or did they both win? Explain.
Price 50 p
Part 2: Check Your Understanding- Use the graph to the right to complete
I BS ps price 50
the following. BEF

is
8. Identify the equilibrium price and quantity. PP and demand
t
n.gg
9. Calculate consumer surplus at the equilibrium price and quantity. Show
your work.
Digg
b
I 1407615 300
10. Calculate the producer surplus at the equilibrium price and quantity.
Show your work. JIG
I 1407 20 400 H
I
11. Calculate total surplus at the equilibrium price and quantity. Show your main
work.
300 400 700 Tty
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 Microeconomics Topic 2.6
Equilibrium & Consumer/Producer Surplus
Part 3- Graph It- The demand schedule below shows how much consumers are willing to pay for shuttles that
transport them from the airport to a resort. The supply schedule shows the number of shuttles that are willing to drive
passengers. Plot the demand and supply and complete the following.

YET o

o
a

12. The data shows that at least one individual is willing to pay $45 for a private shuttle. How much is their individual
consumer surplus? Show your work.
Cl for 1 person how
45 30 muchyou save
13. When the market is at equilibrium, how much consumer surplus does an individual that is willing to pay no more
than $10 for a private shuttle receive? Explain.

E 30
14. How much total consumer surplus do all the buyers receive when the market is at equilibrium? Show your work.

4 20 400
15. If one shuttle provider is willing to drive to the resort for $20, how much producer surplus does this individual
shuttle driver receive when the market is at equilibrium? Show your work.

30 20 10
16. When the market is at equilibrium, how much total producer surplus do all the sellers receive? Show your work.

E bh I 4 120 40
17. Assume the resort begins to subsidize shuttles and offer the service for only $10. How much total consumer
surplus do all the buyers receive? Show your work.

I 8 40 160
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 Microeconomics Topic 2.7
Market Equilibrium and Disequilibrium
Part 1: Check Your Understanding- The demand and supply schedules for backpacks are given below. Graph the
information in the table and complete the following.
prifzs

o i.MY
20
I

idyfantin
b shortage

1. What happens to the demand when the price increases from $10 to $25? Explain.
The demand will stay the same even if
price changes
2. What happens to the quantity demanded when the price increases from $10 to $25? Explain.

Thequantity demanded moves down the

graph from point to point
3. Is there a shortage or surplus at the price of $25? Calculate it and show your work.

4. Is there a shortagesurplus
above loose quantity of 40
or surplus at the price of $10? Calculate it and show your work.
140 100 40
Shortage of 100quantity
5. If the current price is $15, what will likely happen to the price in the near future? Explain.

There will be shortage because it's under

the equilibrium
Part 2: Practice- The graph shows the market for ice cream. The
letters on the graph represent enclosed areas.
6. Identify the equilibrium price and quantity.
PE Py QE Q
7. Identify the consumer surplus and producer surplus at equilibrium.
CS ZSVQxY
8. Assume instead that the demand for PS LKFOMN
ice cream increased resulting
in an equilibrium price of P5. Identify the change in the producer
surplus.
VXYW
9. Assume instead that the supply for ice cream decreased, resulting
in an equilibrium price of P5.
05 2SQ
10. Assume instead that this market was in disequilibrium with the
price stuck at P2. Identify the consumer surplus.
CS SULK
Part 3: Stretch Your Thinking- Complete the following.
11. Explain why economists differentiate between a “change in demand” and a “change in quantity demanded.” Why
don’t they use these phrases interchangeably?

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 Microeconomics Topic 2.7
Changes in Equilibrium
Part 1: Article Analysis- Use the 2016 article about the Zika Virus to complete the following.
Generally, demand for bug-repellent products in the U.S. is low in February. One upside to the wintery weather
currently blanketing swathes of the country is it keeps insect-related worries at bay. But this isn’t your typical
February. Compared with last winter, sales for Invisaband’s signature blue wristband, which repels mosquitoes,
were up more than 400 percent so far this month. Why? The Zika Virus.The virus, which is spread via mosquito
bites, was initially discovered in the 1940s, but did not spread widely in the western hemisphere until this spring.
Recently, the virus has flared up in tropical regions throughout South and Central America. So far no one has
contracted the disease through a mosquito bite in the U.S., but there is a growing concern it will spread throughout
the country with the arrival of mosquito season in the spring. For companies that produce mosquito-repellent
products such as Invisaband -- which launched on Indiegogo in November 2014 and has since made $1 million in
revenue -- this means recalibrating demand. Already the increase in orders, an uptick founder Matthew Kostanecki
says neatly lines up with the dramatic increase in Google searches for Zika in the U.S., has him scrambling to keep
up."We are going to run out of stock,” he says. Because Invisaband’s manufacturer is in China, and won’t open for
production until mid-February, new orders can’t be delivered until early March.

1. According to this article, what caused the demand for insect repellent
products to increase during February 2016?

2. What determinant (shifter) of demand does your answer to question

#1 exemplify? How can you tell?

3. According to this article, what has happened to the supply of insect

repellent products?

4. What determinant of supply does your answer to question #3

exemplify? How can you tell?

5. Use the graph to show the result of the change in demand and supply of insect repellent products. What will likely
happen to the equilibrium price and equilibrium quantity of insect repellent products?

Part 2: Making Predictions- Use supply and demand to complete the following.
6. What will happen to the equilibrium price and quantity of insect repellent products if new drug companies enter the
market? Explain.

7. Assume instead that a new study suggests that the Zika Virus is not transmitted by mosquitoes. What will happen
to the equilibrium price and quantity of insect repellent products? Explain.

Part 3: Stretch Your Thinking- Complete the following.

8. Assume that your friend Ben accuses the producers of insect repellent of being immoral for profiting from this
public health crisis. He suggests that the sellers of insect repellent should provide their products for free or, at
least, charge a significantly reduced price. Do you agree or disagree? Use supply and demand to support your
answer.

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 Microeconomics Topic 2.7
Changes in Equilibrium
Part 1: Practice- For each of the following scenarios, show how each market is affected. Label the initial equilibrium
price and quantity P1 and Q1, the new equilibrium price and quantity P2 and Q2, and explain your reasoning.
1. Perfect weather conditions have affected the crop of oranges but this did not affect the crop of grapes. Assume
that juice producers can substitute oranges for grapes and that consumers consider juice and eggs complements.
Also assume that eggs are used to produce pancakes and that pancakes and maple syrup are complements.

Ttermine
A. Market for oranges B. Market for grapes
price price
supply s
or
Demand D s increase ase
oak stosnitten
supply PI Pi subs move
supplyM
weatherp
perfect
g Q I Pz o 9 in same
aireition
Pz
g pg
I 1 PI
I complement
I I
Demand
Q1 i
a a Rotan
t
Q Q2 Quantity
Explain: Explain:
suplegment
C. Market for juice D. Market for eggs
price price s supply
juice
resourie
PI
R
jjPI
P
QI
p
9 QI I
i ts
y
it tt t t
I Demand
Q1 Quantity Q Q Quantity
Explain: Explain:
if price of eggsgoes
E. Market for pancakes upfor
F. Market
people won't
maple syrup
price price wgantjjagggop
supply
S resource compleme
r
b
Pa P E
É it
1 QI 1 9t Qb
t t
t tt t t
t
t t t
t Demand
fffantity
Q Q Quantity QrQ
Explain: Explain:

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 Microeconomics Topic 2.7
Changes in Equilibrium
2. Assume that only hamburgers are made from ground beef and that hot dogs and hamburgers are perfect
substitutes. Pickles are a complement for hamburgers and mason jars are used to package pickles and jelly.
Lastly, assume that jelly and peanut butter are complements. Show what will happen in each market if the price of
ground beef significantly increases.
A. Market for hamburgers p B. Market for hot dogs
price S s
supply Demand
p I
I It 5

Explain: Q2 Q quantity
Explain:
Q Q2
q
C. Market for pickles D. Market for mason jars
P S Demand P s Demand
Pk
QE
P1
p 9 P
9 QI
ni
g p
Q2Q q Q2 Q
Explain: Explain: q
E. Market for jelly F. Market for peanut butter
p s price s
supply Demand
PI PI
a PITI
Pi to Q1 P
Q1
11
I
I n l
P
Explain:
Q Q2 q Explain:
Q1Q2
quantity

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 Micro Topic 2.8
Effects of Government Intervention
Part 1 - Price Controls​-​ ​Suppose a government institutes a binding price ceiling for cell phones. ​Show
the result using a demand and supply graph and answer the following questions.

price s 1. What will happen to the price, quantity demanded and quantity
supplied of cell phones? The y the
pricegoes quantity
demandedgoesP and the quantitysupplied
goes
2. Does the ceiling yibown
create a shortage or surplus? How can you tell?
a shortage because it's below equilibrium
p q 3. Who benefits from the price ceiling? Explain.
the consumers because cell phones
I are cheaper
IQ Qt
4. Who is harmed by the price ceiling? Explain.
b the producers because they have
QD quantity a shortage of supply and
demand a higher
Part 2 - Practice​- ​The government of Paulaville decides to set prices of wheat. Use the information in
the chart to answer the questions.
5. Calculate the amount of the shortage or surplus if the
government sets a price floor at $2.

Noteffective
6. Calculate the amount of the shortage or surplus if the
government sets a price floor at $10.
PC surplus of 110 16050 110
7. Calculate the amount of the shortage or surplus if the
government sets a price ceiling at $10.
Noteffective above equilibrium
8. Calculate the amount of the shortage or surplus if the
pe government sets a price ceiling at $1.
350 100 250
​ nswer the questions.
Part 3 - Stretch Your Thinking​- A shortageof 250
9. Assume the government of Paulaville establishes a price floor for wheat at $10 and agrees to purchase
any excess wheat that consumers don’t buy. Calculate the amount of the shortage or surplus at the
price floor of $10. Explain your answer.

10. Identify one reason why the government might implement a price floor on wheat even though
economists generally agree that it would result in a less efficient market?

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 Micro Topic 2.8
Effects of Government Intervention
Part 4 - Making Connections​- ​Use the graph to
identify the transaction quantity (Q) and the areas
of consumer surplus (CS), producer surplus (PS),
and deadweight loss (DWL) under the different
OF y N
If
scenarios. Assume that Q3​ ​ is the socially optimal
output. Q

Q unbinding
because
it Tiffin
2 t
a Ightm
215 Q
q Yy Y N

Part 5 - More Practice-​ ​Assume that a price floor is imposed at $40. Use the graph below to answer the
questions. Show your work.
15. How much is the total consumer surplus with
the price floor?
2 1041 810
16. How much is the total producer surplus with
the price floor?
218 5 Iot
17. How much is the deadweight loss with the
price floor?
2.2011 120 on binding
18. Assume instead that a price ceiling is in
imposed at $25. How much is the total
consumer surplus with the price ceiling?

4.2047 440
I
19. How much is the total producer surplus with
a price ceiling at $25?
4.201 4
I
20. How much is the deadweight loss with a
price ceiling at $25? I
0
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 Micro Topic 2.8
The Effects of Government Intervention
Part 1 - Check for Understanding​- ​Use the graph below which shows a competitive market that is
subject to a per unit excise tax to answer the following questions.
1. What is the equilibrium price and
quantity before the tax is imposed?
price 12 Quantity 30
2. What is the equilibrium price and
quantity after the tax is imposed?

Iris
comfort
3.
price 13 Quantity
What is the dollar amount
20
of the tax
per unit?
2 droPnetwggpplymigold
4. What is the net price producers
receive after the tax is collected?
d

j
Explain why 11
plait
5. the equilibrium price paid by
consumers after the tax did not
increase by the full amount of the tax
per unit.
Becatiste ÉÉéÉÉÉÉér's'aiso
paysome of it
Part 2 - Calculate It​- ​Use the graph above to calculate the following before and after the tax is imposed.

Before Tax After Tax

6. Total expenditures by consumers

360 260
7. Total revenue collected by firms
12 11
8. Total tax revenue collected by the government
80 2.20 40
9. Consumer Surplus
45 20
10. Producer Surplus 1 3.30 45 1 2.20 20
11. Total Surplus 90 40
12. Deadweight Loss
0 t 10 2 20

Part 3 - Making Connections​- ​Answer the following question using the graph above.
13. Who contributed more to the total tax revenue: consumers or producers? Explain how you determined
your answer.

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 Micro Topic 2.8
The Effects of Government Intervention
Part 4 - Put It All Together-​ ​The graphs below show the markets for pizza and movies. Each market is
subject to the same $3 per unit excise tax. Answer the questions.

t
14. How much total tax revenue will the government earn by taxing movies? Show your work.

15. How much total tax revenue will the government earn by taxing pizza? Show your work.
2 10 20
16. Explain why the tax on movies generates more revenue for the government than the same tax on pizza.
The demandcurvefor moviesis more
17. When the tax is placed on movies, how much of the total tax revenue
inelastic
is paid by consumers? How much
is paid by producers?
consumers
iii 20
producers 10total tax revenue is paid by consumers? How much
18. When the tax is placed on pizza, how much of the
is paid by producers?
consumers 20
producers 10 or a tax
19. Which causes more deadweight loss, a tax on movies
on pizza? Explain.
mm

Part 5 - Stretch Your Thinking​- ​Assume instead that the

j demand for movies is perfectly inelastic and as shown on the

graph to the right. Answer the following questions.
20. How much of the total tax revenue is paid by consumers?
12.3 14 18
21. How much is paid by producers?
18
22. How much is the deadweight loss? Explain.

NO DNL
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 Micro Topic 2.9
International Trade and Public Policy
Part 1 - Check for Understanding​- ​The graph shows the United States domestic market for soybeans.
The letters on the graph represent enclosed areas.
1. Identify the domestic equilibrium price and
quantity without world trade.

Ps
2. Identify the area of the consumer surplus at
equilibrium.
ABCTSU
3. Identify the area of the producer surplus at
equilibrium. DRVEQF

4. If the world price of soybeans is P​1​, what quantity

I I
of soybeans will the United States produce
domestically?
WP
Q
5. If the world price of soybeans is P​1​, what quantity
of soybeans will the United States import from Demand
Domestic
the world?
Qs Q production
supply
6. What is the consumer surplus if the United States imports soybeans from the world?
ABC DETSRQUVWREQPONM
7. What is the producer surplus if the United States imports soybeans from the world?

F
8. If the United States imposes a tariff on imported soybeans that raises the price up to P​2​, how much will
the United States produce domestically?

Q2
9. If the United States imposes a tariff on imported soybeans that raises the price up to P​2​, how much will
the United States import from the rest of the world?

QU
10. If the United States imposes a tariff on imported soybeans that raises the price up to P​2​, what is the
new amount of consumer surplus?
ABCDTSRUV
11. If the United States imposes a tariff on imported soybeans that raises the price up to P​2​, what is the
new amount of producer surplus?

FEQ
12. If the United States imposes a tariff on imported soybeans that raises the price up to P​2​, how much is
the tariff revenue?
ON
13. What is the deadweight loss of the tariff for the domestic economy as a result of the tariff?

PM
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 Micro Topic 2.9
International Trade and Public Policy
Part 2 - Quota Practice​- ​The graph shows the
United States domestic market for soybeans. The
letters on the graph represent enclosed areas.
14. If the United States imposes an import quota
on imported soybeans of Q​4​ - Q​2​, how much
will the United States produce domestically?

15. If the United States imposes an import quota

on imported soybeans of Q​4​ - Q​2​ how much
will the United States import from the rest of
the world?

16. If the United States imposes an import quota

on imported soybeans of Q​4​ - Q​2​, what is the x
consumer surplus?

17. If the United States imposes an import quota on imported soybeans of Q​4​ - Q​2​, what is the producer
surplus?

18. If the United States imposes an import quota on imported soybeans of Q​4​ - Q​2​, how much are the quota
rents?

19. Who receives the quota rents from the import quota?

20. What is the deadweight loss of the import quota for the domestic economy?

Part 3 - Stretch Your Thinking​- ​Answer the question.

21. International trade is more controversial and

complicated than these graphs suggest. Read the tweet
from President Trump and identify two different examples
of what he, and others, might call “unfair trade”?

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 Micro Topic 2.9
International Trade and Public Policy
Part 1 - Practice​- ​Use the graph for the market for ice cream in the US to identify the following.
1. The consumer surplus at equilibrium.

ZSVQXY
2. The producer surplus at equilibrium.
LMNKOF
3. The consumer surplus if Americans are free to
trade at the world price of P​2​.
ZSULKQXMOYN
4. The domestic producer surplus if Americans are
free to trade at the world price of P​2​.

5.
F
The quantity that Americans will import if they are
free to trade at the world price of P​2​.
WP
6. Qg
The change
Q
in the total surplus as a result of eg
Americans buying ice cream at the world price of
P​2 ​instead of the domestic equilibrium price of P​4​.
RTGHIJ
Part 2 - More Practice​- ​The graph below shows the market for pho (Vietnamese soup). Use the graph to
calculate the dollar amount of consumer surplus and producer surplus in the following scenarios.

40
4.2014 38 7 1
40 8040120
101 4 10.4ft
10.5012 10.2 7
250

​ nswer the following question.

Part 3 - Stretch Your Thinking​- A

g
12. Why do some people support limiting or preventing trade, when economists generally agree that trade
increases total surplus?

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