BUS102: Introduction to Microeconomics - Microeconomics Assignment

Internal Code: MAS4234

Microeconomics Assignment:

Questions: 1) Consider the demand function for widgets to be: QD = 100 – 5P               (1) QS = 5P.                          (2) 2) Calculate the consumer and producer surplus at the market equilibrium. What is the total surplus? 3) Now assume that the government sets a rule that the maximum quantity that can be sold is 25 units. If the price in the market is $15, what is the consumer surplus, producer surplus and the deadweight loss? If the price is $5 what is the CS, PS and DWL? 4) Using equations (1) and (2), sketch the demand and supply diagram and indicate your results from parts (a) – (c). Correctly label the diagram. In 2010, the Australian government imposed a tax on Alcops to reduce teenage binge drinking and alcohol-related harms and hospitalization, and also to raise tax revenue. However, by the end of the financial year no reductions in teenage binge drinking and alcohol-related harm were recorded and, moreover, the revenue raised from the tax was 6% less than predicted. Questions: 1) As an economist, are you surprised about the outcome of the government’s tax policy? Critically discuss. Use the demand and supply model and other appropriate microeconomic tools you have learned in this unit to illustrate your argument. 2) Who bore a greater burden of the tax, the buyers or sellers of Alcops? Was the outcome of the tax efficient? Explain. 3) What other policy could the government implement to reduce teenage binge drinking and alcohol-related harm and hospitalization? Briefly, explain.