Which of the three policies would be worth implementing? Why?.
For this assignment consider a perfect competitive market for a commodity with many buyers and many Show more For this assignment consider a perfect competitive market for a commodity with many buyers and many sellers. The demand equation and the supply equation are estimated. The parameters you will use are based on the last digit of your Franklin student ID (I will use 3) Last Digit of Student ID Qd Qs 0 22 2 * P 2 + 3 * P 1 20 2 * P 4 + 2 * P 2 18 2 * P 2 + 2 * P 3 20 2 * P 2 * P 4 26 3 * P 2 + 3 * P 5 22 2 * P 1 + 5 * P 6 21 3 * P 3 + 3 * P 7 24 6 * P 2 + 5 * P 8 21 3 * P 5 + 5 * P 9 25 P 2 + P Note: To understand market demand supply and equilibrium you need to apply the line concepts of slope and intercept. The PowerPoint Concepts Review: Slope and Intercept will provide a review on these concepts. Action Items Download the Excel spreadsheet for this assignment. Calculate the equilibrium price and equilibrium quantity which clear the market based on your assigned values for Qd (cell B4)and Qs (cell B5). Review the charts in Excel showing Demand Supply and Market Equilibrium. Note: The Price goes on vertical axis and Quantity goes on the horizontal axis. Observe Consumer Surplus Producer Surplus Government Surplus Total Surplus and the Deadweight Loss under each of the following policies: No taxation by the government. Government imposes a $2 tax on the buyers (similar to sales tax but the tax amount is fixed). Government imposes a $2 tax on the sellers (you can think of it as an access to the market charge similar to a tariff but the tax amount is fixed. Compare the three policies above and comment on the results: Does it matter whether the tax is imposed on the buyers or the sellers? Under which policy is the total surplus the highest? Who benefits and who loses from imposing the tax? Which of the three policies would be worth implementing? Why? Write a 1-page business brief that discusses the results of the four questions posed in Action Item 5. Note: Do not just answer the questions but craft a brief to your manager that addresses the issues raised in the questions. Format the brief according to the Business Brief Guidelines. Go to the discussion topic Market Demand Supply and Equilibrium. Post which of the three policies you consider to be worth implementing and why. Effects of a tax Effects of a tax Inputs Intercept Slope Demand 22 -2 Supply 2 3 Equilibrium (calculated) Equilibrium (calculated) Equilibrium (calculated) Price: P* = 4 Quantity: Q* = 14 Tax 2 No tax Price Tax Effective Price Demand Supply Quantity Demand Supply Consumer Surplus Consumer Surplus 49.00 0.1 0 0.1 21.8 2.3 2.1 9.95 0.033333 Producer Surplus Producer Surplus 32.67 4 0 4 14 14 14 4 4 Government Surplus Government Surplus 0.00 11 0 11 0 35 21.9 0.05 6.633333 Total Surplus Total Surplus 81.67 With tax on Buyers With tax on Buyers Price Tax Effective Price New Demand Supply Quantity New Demand Supply Consumer Surplus Consumer Surplus 33.64 0.1 2 2.1 17.8 2.3 2.1 7.95 0.033333 Producer Surplus Producer Surplus 22.43 3.2 2 5.2 11.6 11.6 11.6 3.2 3.2 Government Surplus Government Surplus 23.20 8 2 10 2 26 18 0 5.333333 Total Surplus Total Surplus 79.27 Deadweight Loss Deadweight Loss 2.40 With tax on Sellers With tax on Sellers Price Tax Effective Price Demand New Supply Quantity Demand New Supply New Supply Consumer Surplus Consumer Surplus 33.64 1.1 2 -0.9 19.8 -0.7 5.1 8.45 3.033333 Producer Surplus Producer Surplus 22.43 5.2 2 3.2 11.6 11.6 11.6 5.2 5.2 Government Surplus Government Surplus 23.20 10 2 8 2 26 20 1 8 Total Surplus Total Surplus 79.27 Deadweight Loss Deadweight Loss 2.40 Show less
Which of the three policies would be worth implementing? Why?
