Economics 101
Spring 2005
Homework #2

1. Suppose demand for potato chips in Madison is given by Qd = 40-P while supply is given by Qs = 3P.

a. Find the equilibrium quantity and price. 
b. Find the consumer surplus and producer surplus.

Now suppose that a city of Madison creates a diet support program. Therefore, it imposes an excise tax of $4/sack of potato chips on producers.
c. Find the equilibrium quantity and price after the tax. 
d. Find the taxes paid by consumers.
e. Find the taxes paid by producers.
f. Find the tax revenue collected by a city of Madison.
g. Find the deadweight loss of this tax program.

2. Consider the corn market. The demand for corn is given by P = 50- Qd and the supply of corn is given by P = 10+ Qs. Suppose that the government implements a price support program with the price floor set at $40.
a.	At the price floor determine whether or not there is excess demand or excess supply. State your answer clearly.
b.	Find the direct cost of the support program. Suppose further that there is a storage cost of $1 per unit of  corn. Find the total cost of the support program, including the storage cost. 
Suppose that the government implements a price subsidy program instead of the price support program. Let the government target price be $40.
c.	What is the cost of the subsidy program?

3. The demand for cell phones in Madison is given by P=150- Qd. There are two cell phone providers in Madison. Both have identical supply curves. The individual supply curve for a cell phone provider is given by P = 30+2Qs.
a.	Find the market supply function for cell phones in Madison.
b.	Find the equilibrium price and quantity.