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Chapter 9: Public Onwership (page 327)
How did successive UK governments use public ownership?
regulate market power
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The United States currently imports all of its coffee. The annual demand for coffee by U.S. consumers is given by the demand curveQ= 250 - 10P, whereQis quantity (in millions of pounds) andPis the market price per pound of coffee. World producers can harvest and ship coffee to U.S. distributors at a constant marginal (= average) cost of \(8 per pound. U.S. distributors can in turn distribute coffee for a constant \)2 per pound. The U.S. coffee market is competitive. Congress is considering a tariff on coffee imports of $2 per pound.
a. If there is no tariff, how much do consumers pay for a pound of coffee? What is the quantity demanded?
b. If the tariff is imposed, how much will consumers pay for a pound of coffee? What is the quantity demanded?
c. Calculate the lost consumer surplus.
d. Calculate the tax revenue collected by the government.
e. Does the tariff result in a net gain or a net loss to society as a whole?
Among the tax proposals regularly considered by Congress is an additional tax on distilled liquors. The tax would not apply to beer. The price elasticity of supply of liquor is 4.0, and the price elasticity of demand is -0.2. The cross-elasticity of demand for beer with respect to the price of liquor is 0.1.
a. If the new tax is imposed, who will bear the greater burden鈥攍iquor suppliers or liquor consumers? Why?
b. Assuming that beer supply is infinitely elastic, how will the new tax affect the beer market?
What is economic liberalisation?
What is 1 advantage of public ownership?
About 100 million pounds of jelly beans are consumed in the United States each year, and the price has been about 50 cents per pound. However, jelly bean producers feel that their incomes are too low and have convinced the government that price supports are in order. The government will therefore buy up as many jelly beans as necessary to keep the price at \(1 per pound. However, government economists are worried about the impact of this program because they have no estimates of the elasticities of jelly bean demand or supply.
a. Could this program cost the government more than \)50 million per year? Under what conditions?Could it cost less than \(50 million per year? Under what conditions? Illustrate with a diagram.
b. Could this program cost consumers (in terms of lost consumer surplus) more than \)50 million per year? Under what conditions? Could it cost consumers less than $50 million per year? Under what conditions? Again, use a diagram to illustrate.
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