Explanation of Answers to Quiz 2

Questions 1-3

Questions 1-3 are simply repeats of the questions from quiz 1 with different numbers.  You also had access to two practice versions of these questions on the web.  To answer these questions  you have to be able to draw demand and supply curves and calculate competitive equilibrium price, quantity and profits.
About 90% of the people in the class got numbers 1 and 2 right and about 80% got 3 right. If you can't do these questions by now,  we urge you to consider dropping this course. If you don't understand supply and demand curves, you have no chance of passing this course.
 

Questions 4 and 5

Questions 4 and 5 are simple questions about how to read demand curves. About 95% of the students  in class got question 4 right.  But only about 60% got Question 5 right.
The way to calculate consumers' surplus is explained in detail on pages 33-35 of the text.
 

Questions 6-11

These questions all deal with the effects of a sales tax.  The text has a detailed discussion of the effects of sales taxes is found in your text on pages 108-114.  Question 6 simply asked you to draw supply and demand curves without a tax and you could do this one even if you hadn't studied the sales tax chapter. To answer Questions 7-9 you need to know how the demand or supply curves shift with a sales tax paid by buyers or sellers. To answer 10 you need to be able to figure out the revenue collected by a sales tax and to answer 11 you need to know what excess burden is and how to calculate it. (See pages 113-114 and pages 119 and 120 of the home work.)
 

Questions 12-15

These questions again deal with the effect of a sales tax. The only new thing this time is that the supply curve is vertical (perfectly inelastic) and the demand curve is a downward sloping straight line.  These problems are really easy if you just draw the curves. If you didn't get this problem the first time, try drawing these curves.  The tax paid by demanders causes the demand curve to shift down by the amount of the tax..  Where is the new intersection of the curves?  What happens to the price?  What happens to the number of sales.   How much tax revenue does the government collect? Look up the definition of excess burden and see if you can figure out why the excess burden of the tax is zero.
 

Question 16

See   pp 120-122 of your homework for a discussion of the effects of a subsidy.
 

Question 17

This was a major theme of the chapter and the home work. I f you didn't get this one, you weren't paying attention.
 

Question 18

See page 113.  To do well in this course you have to read the book and learn the concepts.