Suppose anyone with a driver's license is capable of supplying one trip from the airport to the downtown business center on any given day. The long-run supply curve of such trips is horizontal at p = $50, which is the average cost of such trips. Suppose daily demand is Q = 1000 - 10p. Calculate the change in consumer surplus, producer surplus and social welfare if the city government requires
those people supplying such trips to possess a special license, and the government will issue only 300 licenses.
What will be an ideal response?
The competitive equilibrium is Q = 1000 - (10 ? 50 ) = 500. With the supply restriction of 300, price becomes $70. The loss in social welfare is [(70 - 50 ) ? (500 - 300 )]/2 = $2,000. Producers gain (70 - 50 ) ? 300 = $6,000. Consumers lose $6,000 + $2,000 = $8,000.
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Refer to the above figure. Production at Point E
A) would indicate that this economy is producing beyond its capabilities. B) would indicate production at a level below that which is attainable. C) is not attainable with given resources and technology. D) would demonstrate a total lack of technical expertise.
During recent times, the United States has been running a trade deficit (our exports of goods and services have been less than our imports of goods and services). Which of the following is true regarding these trade deficits?
a. They were primarily caused by rapid economic growth in the United States stimulating imports and also the attractiveness of the United States as a place to invest causing a capital inflow. b. These trade deficits put the United States in debt to foreign economies and thus weaken future economic conditions in the United States. c. These trade deficits are evidence that other countries practice unfair trade against the United States because under fair trade exports equal imports to another country. d. None of the above are true regarding the trade deficits of the United States.