# macroeconomics

Q1. Illustrates the market for chocolate bars has the following demand and supply

schedules:

 Price Quantity Demanded Quantity Supplied \$3 111 26 \$4 100 53 \$5 80 80 \$6 64 92 \$7 51 111 \$8 37 120
• Graph the demand and supply curves. What is the equilibrium price and quantity in this market?
• If the actual price in this market were above the equilibrium price, what would drive the market toward the equilibrium?
• If the actual price in this market were below the equilibrium price, what would drive the market toward the equilibrium?

• Q2. Illustrates the market for pizza is characterized by a downward-sloping
demand curve
and an
upward-sloping supply curve.
• a- Draw the competitive market
equilibrium. Label the price, quantity, consumer
surplus, and producer surplus. Is there any
deadweight loss? Explain?
• b- Suppose that the government forces
each pizzeria to pay a \$1 tax on each pizza sold. Illustrate the effect of this
tax on the pizza market, being sure to label the consumer surplus, producer
surplus, government revenue, and deadweight loss. How does each area compare to
the pre-tax case?

c- If the tax were removed, pizza eaters and sellers would be better off, but the government would lose tax revenue. Suppose that consumers and producers voluntarily transferred some of their gains to the government. Could all parties (including the government) be better off than they were with a tax? Explain using the labeled areas in your graph

Q3. Suppose that a market is described by the following supply and demand equations:

QS = 2P

QD = 300 – P

a-Solve for the equilibrium price and the equilibrium quantity

b-Suppose that a tax of T is placed on buyers, so the new demand equation is

QD = 300 – (P + T).

Solve for the new equilibrium. What happens to the price received by sellers, the price paid by buyers, and the quantity sold?

c- Tax revenue is T X Q. Use your answer to part (b) to solve for tax revenue as a function of T. Graph this relationship for T between 0 and 300

d- The deadweight loss of a tax is the area of the triangle between the supply and

demand curves. Recalling that the area of a triangle is 1 ⁄2 x base x height, solve for deadweight loss as a function of T. Graph this relationship for T between 0 and 300. (Hint: Looking sideways, the base of the deadweight loss triangle is T, and the height is the difference between the quantity sold with the tax and the quantity sold without the tax.)

e- The government now levies a tax on this good of \$200 per unit. Is this a good

policy? Why or why not? Can you propose a better policy?

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# MACROECONOMICS

MACROECONOMICS

Question # 1: Go to the website of Bureau of Bureau of Economic Analysis
(http://www.bea.gov) and collect quarterly data from the first quarter of 1970 to the fourth
quarter of 2014 for the following data series:
1. Gross domestic product (GDP)
2. Personal consumption expenditures (C)
3. Gross private domestic investment (I)
4. Net exports of goods and services (NX)
5. Government consumption expenditures and gross investment (G)
Use the GDP deflator available from the course website in CMS and convert the dollar figures
into 2009 dollars including GDP and all its components. Use Excel spreadsheet to produce two
graphs as below:
1. Draw a line chart for nominal and real GDP.
2. Draw another line chart for all other components of GDP. Use only real numbers.
Determine the variable (C, I, NX or G) that is the most volatile (fluctuate up and down
from one quarter to the next) during that period.
Question # 2: Find the data for the above variables and repeat the exercise for Canada as well.

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