# Econ Qs on TAX and SUBSIDY

1. suppose the government imposes a price floor on automobiles. Explain with the aid of diagram how the provision of a subsidy will affect the Qt of automobiles.

Ans: Initially, there is a price floor. The Qd is less than Qs. So the Qt=Qd. After the provision of a subsidy, the supply will increase and the S-curve will shift downwards by the aomunt of subsidy. The Qs then increases from Q1 to Q2. However , the \$cannot change becoz of the price floor. The Qs remains unchanged and the Qt also don't change.

(冇圖唔好意思)

2. The following table shows the market supply and demanf schedules for imported Janpanese TVs.

Unit Price(\$) Qd (units) Qs(units)

5000 700 100

6000 600 200

7000 500 300

8000 400 400

9000 300 500

10000 200 600

(a) suppose the gov. imposes a per-unit sales tax of \$2000 on imported Janpanese TVs.

(i) Find the new equlibrium price and Qt.

Ans: New Eq: \$9000

New Et:300 units

(ii) Calculate the tax burdens on consumers and producers. Is the price elasticity of demand larger than that fo supply

Ans: Consumers' tax burden=(9000-8000)x300 =\$300000

Producers' tax buden=(8000-7000)X300= \$300000

since their tax budens are the same, their elasticity is the same. 好似太簡短但又唔知點寫

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Lv 6
7 年前
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