Suggestions for mixed bag III
The suggestions for the mixed bag are organized by problem.
Problem 1: Analyze the effects of the subsidy on the market demand curve and firm short-run supply curves and then analyze the ramifications of the shifts on price and output in the short run.
Problem 2: This problem requires you to analyze the long-run implications of a subsidy. Use your knowledge of the determinants of the long-run equilibrium price and the effect of the subsidy on the market demand curve to analyze the individual questions.
Problem 3: In this problem you are asked to use the model of perfect competition to explain the greater percentage change in price than average and marginal cost. If the only thing that occurred in the last year was the change in marginal and average cost of 10%, would it be possible for the equilibrium price to rise by 25%? What other kinds of changes in addition to the cost changes could have caused the price to rise in the last year? Use your answer to this question to answer the individual questions.
Problems 4 and 5: These problems are similar to problem 5 on problem set 5. You need to employ the same kind of reasoning here as in that problem. You will also need to consider the following kinds of issues. Suppose the 20% tax on brokerage fees is eliminated and the price of brokerage fees declines by an equal amount. How will this affect the quantity supplied by brokers? How will it affect the quantity demanded? If the industry was originally in equilibrium, could it be in equilibrium at a 20% lower short-run price?