Solution Manual For Microeconomics Theory and Applications Browning Zupan 11th Edition

Solution manual for Microeconomics Theory and
Applications Browning Zupan 11th edition
To download the complete and accurate content document, go to:

https://testbankbell.com/download/solution-manual-for-microeconomics-theory-and-a
pplications-browning-zupan-11th-edition/
Solution manual for Microeconomics Theory and Applications Browning Zupan 11th edition
Browning & Zupan / Microeconomics: Theory & Applications, 11e Solutions Manual
Chapter 10 Using the Competitive Model

Solutions
10.1 Producer surplus is the difference between the revenue received by suppliers and the bare
minimum suppliers need to be paid to supply a given output. Consumer surplus is the difference
between the maximum consumers would be willing to pay for a given amount of output and the
price they actually pay for the output. On a graph, producer surplus equals the difference
between the height of the price line and the height of the supply curve from an output of zero to
the actual output level. Consumer surplus equals the difference between the height of the demand
curve and the height of the price line from an output of zero to the optimal output level. Total
surplus equals the sum of producer surplus, consumer surplus, and net government surplus.
10.2 Total surplus is maximized at the efficient level of output of a good. Total surplus is
diminished to the extent that the output of a good exceeds the competitive output.
10.3 The deadweight loss cost is a measure of the aggregate loss in well-being of participants in
the market due to an inefficiency. It equals the loss in total surplus due to the inefficiency.
10.4 In the figure below, E is the original equilibrium, with price of $5 and output Q1. An ad
valorem tax is a percentage of the price instead of a fixed amount per unit. Hence, the tax
collected rises as price rises, and the new supply curve (S+tax) is steeper than the original (S).
The new equilibrium is E’ and output falls to Q2. The price consumers pay is less than $6, and
the amount of the tax per unit is less than $1 because of the shape of the demand curve. The
qualitative effects of the tax are the same as for an excise tax. The quantitative effects may differ
depending on elasticities and on the size of the ad valorem tax versus the size of the excise tax. If
the excise tax were $1, then the final price consumers paid would be higher and final output
would be less than with the ad valorem tax.
Copyright © 2012 John Wiley & Sons, Inc. 47
Visit TestBankBell.com to get complete for all chapters

10.5 Answer in the text.
10.6 Airlines found other ways to compete when they couldn’t compete with price. They
increased the service, the number of flights, and utilized other promotional means to compete
with each other. As a result, profits fell to the normal level of profits in a competitive industry—
zero.
10.7 The CAB regulations kept new firms out of the market, which the existing airlines probably
liked. They may have feared that in an openly competitive system they wouldn’t fare well.
10.8 Answer in the text.
10.9 a. The size of the shortage would increase and the price of medallions would fall.
b. The demand for cabs falls, so the price of cabs will decrease and the price of
medallions will fall.
c. This raises the cost of driving one’s own car downtown so the demand for cabs
increases, causing prices to increase and the price of medallions to increase.
d. Same as c.
e. Impact on the market will not be very great because new entry cannot occur
until deregulation. The price of medallions will fall though, because the
expected time period over which the higher prices can be collected has fallen.
10.10 The original equilibriums are E and e in the figures below. The increased demand causes
price to increase to P2, and firms make profits as shown in the right-hand figure. The effects
depend on how the tax is applied. If the tax is set at half the profits, and stays at this value, then
the firm’s ATC curve shifts up to ATC’. The remaining profits induce entry, but price only falls
to P3 as the long-run supply curve shifts up due to the tax. Marginal costs are unaffected because
the tax is like a lump-sum tax. If the tax is truly on the economic profits, and falls as economic
profits fall, then the final long-run equilibrium will be G* and price of P1.

10.11 Under the current system, the quantity supplied of organs is Q. Under unrestricted markets,
the quantity would be Q* and price would be P*. The total surplus at this equilibrium would be
ABQO. Under the current system, the surplus is ACQO, which is less by the area of triangle
CBQ.
10.12 In the figure below, the original equilibrium is E, with one million hours of work supplied
at a wage of $4.50. The minimum wage increases the wage by 61.1% so quantity demanded falls
by 93.6%, to 64,000 hours. Given an elasticity of supply of unity, point C on the supply curve is
associated with a wage of $0.29. Producer surplus changes from GEO to FBCO and consumer

surplus falls from AEG to ABF. The area FBIG is a transfer from consumers to producers, and
the area BEC is lost. The deadweight loss is BEC.
S
A
7.25 F B K
J
I
4.50 G E
0.29 H C
0
.064 1 1.21 Low-skilled Labor
(millions)
10.13 If the demand curve is vertical, then producer surplus increases by the area FKEG. This
area is lost to consumers so the area is a transfer from consumers to producers. There is no
deadweight loss.
10.14 In an uncontrolled market, a fall in price (holding demand constant) comes about because
of an increase in supply. The quantity demanded increases due to the lower price, and there are
units of the good to satisfy the consumers wanting to buy more of the good at the lower price. In
the case of a price ceiling such as rent control, this is not the case. Quantity demanded increases
because of the lower price, but quantity supplied falls. Hence, many people who want to rent at
the lower price cannot do so. These consumers are harmed by rent control.
10.15 In the figures below, DUS is the domestic demand and DT is domestic demand plus
demand for U.S. exports. The supply curve is the domestic supply curve only. Price without
exports would be P1 but is P2 with exports. At P2, quantity supplied is less than quantity
demanded.

10.16 The situation is illustrated in the graph below, which replicates some of Figure 10.11. The
transportation costs can be pictured as a shift of ST to ST'. Quantity demanded in the U.S. falls to
q3 and imports fall to q3 - q4. The price American consumers pay increases to P4, which is less
than one cent more than before (since the demand curve in the United States is not perfectly
inelastic). But, the price exporters from the rest of the world receive is P5. Price falls in the rest
of the world to P5, quantity demanded increases to Q4 and quantity supplied falls to Q3. Exports
are Q3 - Q4, which equals q3 - q4.

10.17 The supply curve SR would shift back and price would rise in the Rest of the World.
However, there would be no price change in the U.S. because world suppliers will still offer q2-
q1 units for sale in the U.S. at a price of P4.
10.18 The figure below replicates Figure 10.12 in the text. With free trade, consumer surplus is
AFG and producer surplus is zero because all sugar consumed is accounted for by imports. With
the quota, consumer surplus falls to ABC and producer surplus increases to HB'C. The net loss
in the U.S. is GFBB'H. In the RoW, consumer surplus with the quota is MRS and producer
surplus is UPS. Without the quota, consumer surplus is MNT and producer surplus is UOT. The
net loss to the RoW of the quota is RPON.
10.19 In the figure below, the zero-import equilibrium is with price C prevailing in the US and K
in the Rest of the World. The free-trade equilibrium is price E in the U.S., with all sugar supplied
from imports from the rest of the world. U.S. consumer surplus is ADE and there is no domestic
producer surplus. For the rest of the world, consumer surplus is FGJ and producer surplus is
LHJ. With the prohibitions, U.S. consumer surplus falls to ABC and producer surplus is MBC,
although this area is a transfer from consumers to producers. The welfare loss in the demanded
for the rest of the world. The quantity of U.S. exports equals this excess demand, so the world
equilibrium is achieved at P2. U.S. is the area EDBM. In the rest of the world, consumer surplus
increases to FIK and producer surplus fall to LIK. The welfare cost is GHI, since JGIK is a
transfer from producers to consumers.
Welfare falls in both the U.S. and the Rest of the World.

10.20 a. In the figure below, the equilibrium price is $15. Domestic sales are 11
billion barrels, exports are 14 billion barrels, and domestic production is 25
billion barrels.
b. As a result of trade, consumer surplus falls from AGH to ABC and producer
surplus increases from FGH0 to FDC0. The gains in producer surplus are
greater than the losses in consumer surplus, so there are gains from trade
equal to the area BDG. Everyone in Mexico is not better off because
consumers are paying higher prices. However, producers could compensate
the consumers and still have gains left over, so Mexico as a whole is better
off.
c. We picture the subsidy by shifting the supply curve down by $2. Total
production increases to 27 billion barrels, domestic consumption is
unchanged, and exports increase to 16 billion barrels. Consumer welfare is
unchanged, while producer surplus increases by BDD'B'. The government
pays a subsidy of B'D'JB. The area D'JD is a loss to Mexico as a whole.
(Note, the subsidy must be financed by taxes so taxpayers are harmed as
well.) Mexico as a whole is harmed by the subsidy.

10.21 False. Consumer surplus may be greater if output exceeds the competitive output level.
Producer surplus may be greater if output is less than the competitive output level.
10.22 An excise tax produces a deadweight loss equal to area ABC in the graph below.
Consumer surplus declines by area P’ABP. Producer surplus remains equal to zero.
Government surplus (in the form of tax revenue collected) increases by P’ACP. The change in
total surplus (P’ACP minus P’ABP) equals the deadweight loss. Total surplus, however, reflects
consumer, producer, and government surplus and not just consumer and producer surplus.

Solution manual for Microeconomics Theory and Applications Browning Zupan 11th edition
10.23 The extent to which suppliers/consumers benefit from the absence of a sales tax on
Internet purchases hinges relative inelasticity of the relevant supply/demand curve for a good.
See the discussion in Section 10.2 for more details.
10.24 As shown in Figure 10.12, unless the domestic demand and supply are highly price
inelastic, adding 1 percent additional supply to the domestic supply at any price will result in
very little downward pressure on the market price.
10.25 In the short and long run, the number of hours worked by the average licensed doctor will
increase, the profits made by licensed doctors will increase, and the prevailing prices charged
will rise.
10.26 None of the changes would occur in such an alternative scenario: average hours worked
would not increase, profits would not increase, and the prevailing price would not increase.
Visit TestBankBell.com to get complete for all chapters

Solution Manual For Microeconomics Theory and Applications Browning Zupan 11th Edition

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Solution Manual For Microeconomics Theory and Applications Browning Zupan 11th Edition

Uploaded by

Copyright:

Available Formats

Solution manual for Microeconomics Theory and

Applications Browning Zupan 11th edition

To download the complete and accurate content document, go to:

Chapter 10 Using the Competitive Model

Copyright © 2012 John Wiley & Sons, Inc. 47

Visit TestBankBell.com to get complete for all chapters

10.5 Answer in the text.

10.8 Answer in the text.

Copyright © 2012 John Wiley & Sons, Inc. 48

Copyright © 2012 John Wiley & Sons, Inc. 49

Copyright © 2012 John Wiley & Sons, Inc. 50

Copyright © 2012 John Wiley & Sons, Inc. 51

Copyright © 2012 John Wiley & Sons, Inc. 52

Copyright © 2012 John Wiley & Sons, Inc. 53

Copyright © 2012 John Wiley & Sons, Inc. 54

Copyright © 2012 John Wiley & Sons, Inc. 55

Visit TestBankBell.com to get complete for all chapters

You might also like