ECMA04H

Final Exam, December 2010 Time: 3 hours

Professor Gordon Cleveland

THIS IS VERSION A OF THE EXAM - MAKE SURE TO INDICATE THIS
VERSION ON YOUR SCANTRON SHEET, AND ON YOUR ANSWER
BOOKLET, BOTH WHICH ARE TO BE TURNED IN AT THE END OF THE
EXAM. YOU WILL TAKE THE QUESTION SHEETS AWAY WITH YOU.

INSTRUCTIONS

1. This exam consists of 13 numbered pages, plus a short answer booklet with 4 pages. Please check that
you have all the pages.

2. On the Scantron answer sheet, you must
! PRINT your last name and first name
! enter your student number as the identification number
! FILL IN THE BUBBLES under your name and student number
! FILL IN THE BUBBLE ASSOCIATED WITH YOUR TEST VERSION
NOTE - THIS IS VERSION A

3. On the answer booklet, you must fill in your name and student number. DO NOT REMOVE THE
STAPLE FROM THE ANSWER BOOKLET.

4. This exam consists of 40 multiple choice questions (and a 41
st
which simply confirms your exam
version), as well as two short answer questions (with multiple parts). For the multiple choice questions,
choose the correct answer. If two multiple choice answers both seem to be approximately correct, choose
the best of the two answers. Enter the answers to the multiple choice questions on the Scantron sheet
provided to you by filling in the appropriate bubble. If answers are not written on this sheet, there
will be no marks given for answers. Each correct answer is worth 2 marks (except for question 41, which
simply confirms your exam version); incorrect answers receive 0 marks. Questions 42 and 43 are to be
answered in the answer booklet.

5. Total time for the exam is 3 hours. You may leave early, but not before one-half hour has passed,
and you may not leave in the last five minutes of the exam. At the end of the exam, remain in your
seat and wait until you have been given permission to leave. The exam will be collected from you.
Wait until you are given permission to leave.

6. Use only approved calculators. Calculators which can store information will be confiscated. If the
confiscated calculator is found to contain notes of any kind, academic consequences will ensue.

7. Cheating will be dealt with to the fullest extent possible under University rules.

8. Good luck. Have an enjoyable holiday.

VERSION A

2

This term test consists of 40 questions (plus a 41
st
identifier question). Answer each question by choosing the
best alternative and indicating your choice in the appropriate place on the scantron sheet provided with this
exam (you will turn it in at the end of the exam). Questions 42 and 43 are to be answered on the Answer
Sheet (which you will also turn in at the end of the exam). You may take the question sheets away with you,
so you can use the fronts and back of these pages for your rough work. If you wish to keep a record of your
answers, make a note of them on the question sheets.

Each correct answer to questions 1 through 40 is worth 2 marks (there is no deduction for wrong answers).


PART I: MULTIPLE CHOICE QUESTIONS (80 marks)
1-3. A country produces goods X and Y and has the following equation for its production
possibilities frontier: X
3
+ Y
2
= 280 or Y = (280 - X
3
)
!

Questions 1 through 3 concern this country.

1. The point X = 6.5, Y = 0 is:
A) attainable and efficient B) attainable and inefficient
C) unattainable D) unattainable and efficient
E) imaginable and infeasible F) none of the above

2. You are told that the economy is producing efficiently and has chosen to produce and consume 6
units of X. At this point on the production possibilities frontier, you would use calculus to obtain the
opportunity cost of X (correct to two decimal places) as:
A) 0.15 B) 0.25 C) 0.5 D) 0.75 E) 1.0 F) 2.25
G) 4.50 H) 5.85 I) 6.75 J) none of the above

3. You are told that the consumers in this economy value goods X and Y according to the following
value function: V = 54X + 2Y
2
. If consumers are able to reach the point on the production
possibilities frontier that gives them the highest attainable value, what will be the amount of X they
will consume (correct to two decimal points)?:
A) 1.15 B) 2.5 C) 3.0 D) 3.75 E) 4.0 F) 4.25
G) 4.50 H) 6.0 I) 9.0 J) none of the above


3
4-7. The market for beer (a perfectly competitive industry) is in equilibrium, and its short run supply
and demand schedules have the usual shapes. Beer is a normal good (and you can safely ignore any
effects of income on the demand for other related goods). Pizza is a complementary good to beer,
and wine is a substitute in consumption for beer. Questions 4 through 7 concern the market for beer
in the short run, and each question should be considered in isolation from the others (that is, in each
question assume that the changes described in the other questions have not occurred).

4. The price of pizza rises. As a result, in the beer market:
A) P
*
and Q
*
both rise B) P
*
and Q
*
both fall C) P
*
rises and Q
*
falls
D) P
*
falls and Q
*
rises E) P
*
rises, but we do not know exactly what happens to Q
*

F) P
*
falls, but we do not know exactly what happens to Q
*

G) Q
*
rises, but we do not know exactly what happens to P
*

H) Q
*
falls, but we do not know exactly what happens to P
*

I) either P
*
and Q
*
both rise, or P
*
and Q
*
both fall, or neither changes
J) either P
*
rises and Q
*
falls, or P
*
falls and Q
*
rises, or neither changes


5. The price of wine falls and the price of pizza falls too. As a result, in the beer market:
A) P
*
and Q
*
both rise B) P
*
and Q
*
both fall C) P
*
rises and Q
*
falls
D) P
*
falls and Q
*
rises E) P
*
rises, but we do not know exactly what happens to Q
*

F) P
*
falls, but we do not know exactly what happens to Q
*

G) Q
*
rises, but we do not know exactly what happens to P
*

H) Q
*
falls, but we do not know exactly what happens to P
*

I) either P
*
and Q
*
both rise, or P
*
and Q
*
both fall, or neither changes
J) either P
*
rises and Q
*
falls, or P
*
falls and Q
*
rises, or neither changes

6. Consumers read an article suggesting that the ads are correct and that beer drinking actually does
make you smarter, richer, and more attractive to members of the opposite sex; at the same time,
tighter environmental regulations force changes so that companies need more labour and more
capital equipment to produce the same amount of beer. As a result, in the beer market:
A) P
*
and Q
*
both rise B) P
*
and Q
*
both fall C) P
*
rises and Q
*
falls
D) P
*
falls and Q
*
rises E) P
*
rises, but we do not know exactly what happens to Q
*

F) P
*
falls, but we do not know exactly what happens to Q
*

G) Q
*
rises, but we do not know exactly what happens to P
*

H) Q
*
falls, but we do not know exactly what happens to P
*

I) either P
*
and Q
*
both rise, or P
*
and Q
*
both fall, or neither changes
J) either P
*
rises and Q
*
falls, or P
*
falls and Q
*
rises, or neither changes

4


7. Consumers incomes rise. At the same time, changes in labour relations law result in
deunionization in the beer industry, and as a result the wages earned by beer workers fall. As a
result, in the beer market:
A) P
*
and Q
*
both rise B) P
*
and Q
*
both fall C) P
*
rises and Q
*
falls
D) P
*
falls and Q
*
rises E) P
*
rises, but we do not know exactly what happens to Q
*

F) P
*
falls, but we do not know exactly what happens to Q
*

G) Q
*
rises, but we do not know exactly what happens to P
*

H) Q
*
falls, but we do not know exactly what happens to P
*

I) either P
*
and Q
*
both rise, or P
*
and Q
*
both fall, or neither changes
J) either P
*
rises and Q
*
falls, or P
*
falls and Q
*
rises, or neither changes

8-11. A typical consumer has a utility function for cable movies given by the following function:
U = 72X 0.15X
2

where X is the number of cable movies viewed per year and U is measured in dollars. Questions 8
through 11 concern this consumer.

8. If the price of cable movies is set at $12 per movie, the consumer surplus gained by this typical
consumer each year through purchasing cable movies will be:
A) $1200 B) $2400 C) $3600 D) $4800 E) $6000
F) $6400 G) $7200 H) $7800 I) $8200 J) none of the above

9. Imagine that the cable company is trying to boost sales. It offers this consumer the following
alternative to a price of $12 per movie: the consumer would pay a nominal fee of only $3.00 per
movie plus a yearly access charge that would permit the consumer to view as many movies as he or
she liked, at no additional charge. The maximum yearly access charge that this consumer would be
willing to pay (as an alternative to the $12 per- movie fee) would be:
A) $120 B) $240 C) $360 D) $800 E) $1760
F) $1935 G) $2400 H) $2640 I) $3200 J) none of the above


5
10. Now forget about the yearly access charge and return to the initial situation in which the
consumer is charged a price of $12 per unit. Suppose that the government imposes a tax of $12 per
unit on this good, and that the effect of the tax falls entirely on consumers (so that the price paid by
consumers rises to $24). The value of the utility loss for this consumer associated with such a tax
(compared to the situation with a price of $12 per unit) would be:
A) $120 B) $240 C) $360 D) $480 E) $760
F) $960 G) $2120 H) $2240 I) $3200 J) none of the above

11. In your judgement, what is the elasticity of the industry supply curve at the new equilibrium after
the tax?
A) zero B) 0.25 C) 0.5 D) 0.75 E) 1.0 F) 2.25
G) 4.50 H) perfectly elastic I) it is not possible to tell J) none of the above

12-17. A firm in a perfectly competitive constant cost industry has total costs in the short run given
by: TC = 2q
2
+ 2q + 72 q " 2
where q is output per day and TC is the total cost per day in dollars. The firm has fixed costs of $54
(already included in the TC equation above). The TC equation generates minimum average costs of
$26 (per unit) at q = 6. You are also told that this size firm generates minimum long run average
costs (that is, minimum LAC occurs at q = 6, with min LAC = $26). Questions 12 through 17
concern this firm and this industry.

12. If this firm faces a price of $38, the number of units it will produce per day in the short run is:
A) 4 B) 5 C) 6 D) 7 E) 8 F) 9
G) 10 H) 11 I) 12 J) none of the above

13. This firms shut down price is:
A) $3 B) $8 C) $10 D) $11 E) $12 F) $13
G) $14 H) $15 I) $16 J) none of the above

14. Now you are told that in the short run there are 400 firms, including this one, in the industry, all
with the same cost curves described above. Suppose that the demand curve facing the industry is
given by the equation P = 44 - .002Q where P is the price per unit and Q is the number of
units demanded per day. The equilibrium price in the short run is:
A) $14 B) $24 C) $26 D) $30 E) $33 F) $35
G) $36 H) $37 I) $38 J) none of the above


6
15. Given the demand curve described in question 14, suppose that we are now in the long run.
The number of firms in the industry, rounding to the nearest integer, is:
A) 400 B) 500 C) 600 D) 700 E) 800 F) 900
G) 1000 H) 1250 I) 1500 J) none of the above

16. Now return to the situation described in question 14, in which there are 400 identical firms in
the industry in the short run, all with the same cost curves described at the beginning of the problem,
and with an industry demand curve of P = 44 - .002Q. Suppose that the government imposes a
$12 per unit tax on producers (sellers). The fraction of the tax that falls on consumers (buyers) in the
short run will be:
A) 0 B) 1/12 C) 1/6 D) 1/4 E) 1/3 F) 1/2
G) 7/12 H) 2/3 I) 5/6 J) none of the above

17. What will be the excess burden of the tax described in Question 16?
A) $1200 B) $2400 C) $3600 D) $4800 E) $6000
F) $6400 G) $7200 H) $7800 I) $8200 J) none of the above


18-21. A single firm owns the only subway system in a large city. The firm has total costs in the
short run given by:
TC = 0.005q
2
+ q + 32 q ! 2

where q is the number of riders per minute using the subway and TC is the total cost per minute in
dollars. The demand for subway rides is given by:
P = 3.10 - 0.02q
where q is the number of riders per minute using the subway and P is the price charged to each
consumer in dollars. Questions 18 through 21 concern this subway system.

18. To maximize profit, what price will the firm charge?
A) $1.00 B) $1.32 C) $1.56 D) $1.64 E) $1.70
F) $1.82 G) $1.96 H) $2.00 I) $2.26 J) none of the above

19. If the government decides to regulate the subway and requires the firm to charge a price that
reduces economic profits to zero, what price will be charged?
A) $1.00 B) $1.32 C) $1.56 D) $1.64 E) $1.70
F) $1.82 G) $1.96 H) $2.00 I) $2.26 J) none of the above


7
20. When the government regulates the subway as described in Question 19, what is the change in
the total gain to society (per minute) in moving from a profit-maximizing monopoly to a regulated
monopoly?
A) $2.10 B) $11.22 C) $12.10 D) $17.64 E) $18.72
F) $21.82 G) $22.96 H) $32.00 I) $40.96 J) none of the above

21. Now the government decides to take over the subway and operate it at a loss by charging price
equal to marginal cost. What price will be charged (to the nearest penny)?
A) $1.00 B) $1.32 C) $1.56 D) $1.64 E) $1.70
F) $1.82 G) $1.96 H) $2.00 I) $2.26 J) none of the above

22-24. In a small and isolated cottage community near a lake in northern Ontario, there are 40
cottagers, each of whom have the following utility for snow plowing during the winter on the private
road leading to the community: U = 60X - X
2

where X is the number of units of snow-plowing on the road over a typical winter, and U is the
utility measured in dollars for each member of the community when X units of snow-plowing are
purchased. Cottagers derive the same benefit from the snow-plowing whether or not they participate
in purchasing it, so snow-plowing is a public good to these cottagers. Snow-plowing costs $400 per
unit of X. Questions 22 through 24 refer to this problem.

22. The socially optimal number of units of snow-plowing that the community should purchase is:
A) 10 B) 14 C) 15 D) 18 E) 20 F) 22
G) 25 H) 28 I) 30 J) none of the above

23. The gain to society if the cottagers can co-operate to purchase the optimal level of snow-
plowing is:
A) $10,000 B) $15,000 C) $20,000 D) $25,000 E) $30,000 F) $35,000
G) $40,000 H) $45,000 I) $50,000 J) none of the above

24. The failure of individuals to co-operate in these kinds of situations can occur because of:
A) the natural monopoly problem
B) the free rider problem
C) the price control problem
D) the social dysfunction problem
E) the comparative advantage problem
F) the market failure problem
G) the prisoners dilemma problem
H) deadweight loss
I) excess burden
J) none of the above


8
25-27. A small country has domestic demand and supply curves given by the following equations:
domestic demand P = 50 - .02Q
domestic supply P = 10 + .005Q
The country discovers that there is an international source of supply of this product and this country
can buy or sell as much of the commodity internationally as it wishes at a price of $14 per unit.
Questions 25 through 27 concern this country.

25. If the country moves from autarchy (i.e., no international trade) to free trade, the change in the
GTS (Gain to Society) will be:
A) $300 B) $1,000 C) $2,000 D) $3,000 E) $4,000 F) $5,000
G) $6,000 H) $7,000 I) $8,000 J) none of the above

26. Suppose that the country imposes a tariff of $3.00 on every unit of the good that is imported.
The amount of revenue collected through this tariff will be:
A) $120 B) $240 C) $360 D) $480 E) $600
F) $640 G) $720 H) $750 I) $820 J) none of the above

27. Continue the situation in question 26 in which the country imposes a tariff of $3.00 on every
unit of the good imported. The total GTS (Gain to Society) with the tariff will be:
A) $30,000 B) $32,125 C) $32,575 D) $32,875 E) $33,000 F) $33,125
G) $33,250 H) $33,625 I) $34,000 J) none of the above

28. John and Gordon are neighbours in an isolated part of Ontario, and both of them enjoy sitting
outside and relaxing on warm summer days. However, the area has mosquitoes, and this makes
sitting outside less desirable than it otherwise might be. If neither of them does anything about
mosquito control, then each of them will derive $100 of pleasure from sitting outside. If John
spends $60 eliminating mosquitoes (but Gordon spends nothing), then John and Gordon will each
gain an extra $50 in pleasure from sitting outside. Similarly, if Gordon spends $60 eliminating
mosquitoes (but John spends nothing), then John and Gordon will each gain an extra $50 in pleasure
from sitting outside. If both John and Gordon spend $60 each eliminating mosquitoes, then they will
each gain an extra utility value of $100 from sitting outside. The stable equilibrium (also called the
Nash equilibrium) will involve:
A) John spending $60 eliminating mosquitoes and Gordon spending nothing
B) Gordon spending $60 eliminating mosquitoes and John spending nothing
C) John and Gordon each spending $60 eliminating mosquitoes
D) John and Gordon each spending nothing eliminating mosquitoes
E) none of the above


9
29-31. In the province of Alberta, there are two oil companies that produce large ponds of toxic
waste products from oil production. The benefits to society from cleaning up this pollution are given
by: TBA = 1296A
T
A
T
2
, where TBA is the total benefit of abatement, and A
T
represents the total
quantity of waste cleaned up. However, cleanup is costly, and uses up significant amounts of
societys resources. Economists have been calculating the total cost of cleaning up for each of these
two firms. For the first company, SinCrude, the cost of cleanup can be summarized in the equation
TC
1
= 4A
1
2
, where TC is the total cost of cleanup and A is the amount of waste cleaned up by this
firm. This company currently produces 320 units of pollution. For the second company, called
Penance, the cost of cleanup can be summarized by the equation TC
2
= A
2
2
. This company currently
produces 320 units of pollution.

29. If the government is seeking to achieve an optimum amount of pollution reduction by levying
fines on polluters, what should be the fine on each unit of pollution by these companies?
A) $326 B) $424 C) $486 D) $512 E) $548 F) $568
G) $576 H) $624 I) $648 J) none of the above


30. If the government instead decides to use a system of tradeable emissions permits as a way to
reduce pollution, after all the trading of permits has occurred, how many units of pollution will Firm
#1 (SinCrude) clean up?
A) 0 B) 24 C) 72 D) 96 E) 120 F) 180
G) 288 H) 360 I) 420 J) none of the above


31. If the government uses a system of tradeable emission permits to clean up the optimal amount of
pollution, what will be the total cost of cleaning up the pollution?
A) $20,564 B) $48,664 C) $76,964 D) $82,944 E) $96,576 F) $101,678
G) $103,680 H) $110,780 I) $227,520 J) none of the above




10


32. In response to rapidly rising rents, a Canadian province passes a law instituting rent controls.
A newspaper makes the following three statements about this policy. Which of these
statements are true?
I. Some people who want to rent apartments will be made better off by this policy.
II. We can expect that some renters will try to make illegal payments to landlords.
III. In the long run, the government will be able to eliminate rent controls because
entrepreneurs will be anxious to build new apartment buildings.
(A) only I (B) only II (C) only III (D) I and II (E) II and III
(F) I and III (G) I and II and III (H) none of the statements are correct

33. At the current level of output of a firm, we know that P = MR=MC>AC>AVC>0. What can
we tell about the elasticity of demand (E
D
) for the output of this entire industry at this output?
(A) E
D
> 5.0
(B) E
D
> 2.0
(C) E
D
> 1.0
(D) E
D
= 1.0
(E) E
D
< 1.0
(F) E
D
< 0.0
(G) elasticity is infinite
(H) it is not possible to tell anything about the elasticity of demand
(I) none of the above
(J) all of the above

34. All firms in an industry have the same costs. Assume that all other firms in the industry are in
short-run equilibrium. However, at the current level of output of one particular firm,
AC=MC>P=MR>AVC. If nothing changes, this firm should:
(A) decrease its output.
(B) increase its output.
(C) keep output constant.
(D) shut down in the short run.
(E) decrease output in the short run and shut down in the long run.
(F) increase output in the short run and shut down in the long run.
(G) adjust output until Total Revenue = Total Cost.
(H) produce where the marginal cost curve just cuts the demand curve in the short and long run.
(I) none of the above.


11

35. Consider the following three statements about perfect competition. Which of these statements
are true about a perfectly competitive industry?
I. In the long run, firms enter or exit a perfectly competitive industry in search of higher
profits but all of them end up earning zero profit.
II. Every firm in long run equilibrium will be exactly the right size to deliver the lowest
possible average costs of production.
III. As we move to the right along the short-run supply curve of the perfectly competitive
industry, each firm is supplying more output to the market.
(A) I only (B) II only (C) III only (D) I and II (E) I and III
(F) II and III (G) I and II and III (H) none of the above

36. Suppose that a perfectly competitive constant cost industry is initially in short and long-run
equilibrium. In general, what will be the effect of an increase of $10 per unit in variable
costs on the short-run equilibrium price, the short-run industry output, the short-run output of
the firm, and the short-run profit of the firm?
(A) no change in price, industry output, firm output, or profit
(B) increase in price, industry output, firm output, and profit
(C) increase in price, industry output, and firm output, but decrease in profit
(D) increase in price, decrease in firm output and industry output and profit
(E) increase in price and industry output, decrease in profit but no change in firm output
(F) increase in price and firm output, decrease in profit but no change in industry output
(G) increase in firm output and industry output, decrease in profit but no change in price
(H) no change in price, firm output, or industry output but a decrease in profit
(I) no change in price, firm output, or profit, but a decrease in industry output
(J) none of the above

37. When fixed costs double in amount, what happens to the minimum point on the firms
average cost curve?
(A) It rises and moves to the left (lower output).
(B) It rises vertically but stays at the same level of output.
(C) It rises and moves to the right (higher output).
(D) It falls and moves to the left (lower output).
(E) It falls vertically but stays at the same level of output.
(F) It falls and moves to the right (higher output).
(G) The minimum point on the average cost curve does not change.
(H) None of the above

12


38. Over a given range of prices, the own-price elasticity of demand for Oat Flakes, a Presidents
Choice product, is a constant 2.0. Therefore, in this range, a 1.5 percent increase in price will
cause (approximately):
(A) a 3 % decrease in quantity demanded (Q) and a 1 % decrease in Total Revenue (TR)
(B) a 2 % decrease in Q and a 3 % decrease in TR
(C) a 1 % decrease in Q and a 1.5 % decrease in TR
(D) a 2 % decrease in Q and a 4 % decrease in TR
(E) a 3 % increase in Q and a 4.5 % decrease in TR
(F) a 2 % increase in Q and a 4 % decrease in TR
(G) a 1 % increase in Q and a 3 % decrease in TR
(H) a 3 % increase in Q and a 10 % decrease in TR
(I) a 3 % decrease in Q and a 1.5 % decrease in TR
(J) a 2 % decrease in Q and a 3 % increase in TR

39. You are given the following statements about negative externalities associated with the
production of a particular commodity. Which of them are generally true?
I) The marginal social cost of an increase in output exceeds the marginal private cost.
II) Private markets will provide less output of this particular commodity than is socially
desirable.
III) Private firms will concentrate on private costs and ignore the cost burden they impose on
others.
(A) I only (B) II only (C) III only (D) I and II (E) I and III
(F) II and III (G) I and II and III (H) none of the above

40. Here are three statements about public goods. Which of the statements are generally true?
I. All consumers consume the same units of the public good.
II. It is generally impossible to exclude people who do not pay for the public good from
using it.
III. Public goods are both non-rival and excludable.
(A) I only (B) II only (C) III only (D) I and II (E) I and III
(F) II and III (G) I and II and III (H) none of the above


41. Which version of the final exam are you writing? Hint: the correct answer is Version A
A) Version A B) Version B C) Version C




13
PART II: SHORT ANSWER QUESTIONS (20 marks)

Answer each question in the appropriate place in the ANSWER BOOKLET. Provide as much detail
as possible in the diagrammatic answers.


42. In Canada, the production of 1 unit of food (F) requires 1/6 of a unit of labour and the
production of 1 unit of shelter (S) requires 1/8 of a unit of labour. In Morocco, the production of 1
unit of food (F) requires 1/4 of a unit of labour and the production of 1 unit of shelter (S) requires
1/2 of a unit of labour. Canada has 60 units of labour and Morocco has 60 units of labour. In the
absence of trade, Canada produces and consumes 135 units of food and 300 units of shelter, and
Morocco produces and consumes 80 units of food and 80 units of shelter. These two products and
these two countries are the only ones in the world. When trade is opened up, the two countries trade
food for shelter at a 1-to-1 ratio, and 160 units of food and 160 units of shelter are exchanged. On
the diagrams provided, draw and clearly label the production possibilities curve for each country.
Indicate where each country starts out before trade occurs (with a C
0
for Canada and a M
0
for
Morocco). Indicate the point at which each country produces (using a C
P
for Canada and a M
P
for
Morocco) and the point at which each country consumes (using a C* for Canada and a M* for
Morocco), and show the trading line (the consumption possibilities curve or consumption
possibilities function) for each country. Label your diagram as completely as possible. Below the
diagram, explain in a small number of words what is meant by the terms of trade. How can we tell
the terms of trade by looking at the graph? (10 marks)




43. A monopoly firm has an industry demand curve given by P = 100 Q. The total cost function
of the monopolist is TC = 102 + 10Q + .25Q
2
. Initially, the monopolist is in profit-maximizing
equilibrium. Then the government decides to levy a tax of $15 per unit on the output of this
monopolist.
(a) on the graph below show the initial equilibrium of the monopolist before the tax (use the symbols
P* and Q* to indicate this equilibrium and show the numerical value of both P* and Q* beside each
symbol). Draw the curves necessary to show this equilibrium and label clearly each curve/line.
(b) Show the new equilibrium after the $15 tax (use the symbols P
1
* and Q
1
* to indicate the new
equilibrium and show the numerical value of both P
1
* and Q
1
* beside each symbol ).
(c) Shade in the area that shows the excess burden due to the tax.
(d) Underneath the graph show the numerical value of the excess burden of the tax. Also beneath
the graph write down the amount of the sellers share of the tax.