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Chapter 9: Privatization (page 327)
What are the features of privatization when being implemented on a state owend firm?
Vertical and horizontal integration and layers.
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The domestic supply and demand curves for hula beans are as follows:
Supply: P = 50 + Q
Demand: P = 200 - 2Q
where P is the price in cents per pound and Q is the quantity in millions of pounds. The U.S. is a small producer in the world hula bean market, where the current price (which will not be affected by anything we do) is 60 cents per pound. Congress is considering a tariff of 40 cents per pound. Find the domestic price of hula beans that will result if the tariff is imposed. Also compute the dollar gain or loss to domestic consumers, domestic producers, and government revenue from the tariff.
In 1983, the Reagan administration introduced a new agricultural program called the Payment-in-Kind Program. To see how the program worked, let鈥檚 consider the wheat market:
Suppose the demand function is QD = 28 - 2P and the supply function is QS = 4 + 4P, where P is the price of wheat in dollars per bushel, and Q is the quantity in billions of bushels. Find the free-market equilibrium price and quantity.
Now suppose the government wants to lower the supply of wheat by 25 percent from the free-market equilibrium by paying farmers to withdraw land from production. However, the payment is made in wheat rather than in dollars鈥� hence the name of the program. The wheat comes from vast government reserves accumulated from previous price support programs. The amount of wheat paid is equal to the amount that could have been harvested on the land withdrawn from production. Farmers are free to sell this wheat on the market. How much is now produced by farmers?How much is indirectly supplied to the market by the government? What is the new market price? How much do farmers gain? Do consumers gain or lose?
Had the government not given the wheat back to the farmers, it would have stored or destroyed it. Do taxpayers gain from the program? What potential problems does the program create?
Why have recent successive UK governments prefferred a PFI over PPPs?
Example 9.6 (page 353) describes the effects of the sugar quota. In 2016, imports were limited to 6.1 billion pounds, which pushed the domestic price to 27 cents per pound. Suppose imports were expanded to 10 billion pounds.
a. What would be the new U.S. domestic price?
b. How much would consumers gain and domestic producers lose?
c. What would be the effect on deadweight loss and foreign producers?
Suppose the market for widgets can be described by the following equations:
Demand: P = 10 - Q
Supply: P = Q 鈥� 4
where P is the price in dollars per unit and Q is the quantity in thousands of units. Then:
a. What is the equilibrium price and quantity?
b. Suppose the government imposes a tax of \(1 per unit to reduce widget consumption and raise government revenues. What will the new equilibrium quantity be? What price will the buyer pay? Whatamount per unit will the seller receive?
c. Suppose the government has a change of heart about the importance of widgets to the happiness of the American public. The tax is removed and a subsidy of \)1 per unit is granted to widget producers. What will the equilibrium quantity be? What price will the buyer pay? What amount per unit (including the subsidy) will the seller receive? What will be the total cost to the government?
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