Econ 101 Introduction to Economics IECON/MAN SectionsBilkent UniversityFall 2011-2012Homework IIDue: October 30, 2011You should submit your homework to Turnitin before 17:301) The government would like to reduce smoking. In order to achieve this the government isconsidering the following three policies:a. Impose a price floor on the cigarette price.b. Impose a sales tax on cigarette sales.c. Impose a excise tax on cigarette producers.d. Restrict smoking in certain places.Predict the effects of these policies on the equilibrium price and quantity of cigarettesales.2) For the demand displayed below, find the elasticity of demand at P = 5 (point A), P = 4(point B), P = 3 (point C), P = 2 (point D).P (TL/kg)Q (kg)1 2 3 4 5 6 7 8 96 5 4 3 2 1 ABCD 3) The price elasticity of demand for cigarette is estimated as -0:5 at the current price of7 TL/package. Due to the increase in taxes on cigarette the current price has become9 TL/package. Due to this, approximately, what would be the percentage decrease incigarette consumption?4) Consider a market for rice consisting of a single consumer and a single supplier (producer).In this marker rice is sold (and produce) in quantities which are a multiple of 5 kg. Thedemand and supply of rice is a follows:Demand (kg) Price (TL/kg)5 4.510 3.015 2.020 1.525 1.030 0.0Supply (kg) Price (TL/kg)5 0.510 1.015 2.020 3.525 5.030 7.0a. How much is the consumer willing to pay to get his first 5 kg of rice?b. What is his marginal benefit (i.e., at what rate does the consumer benefit) when hereceives his first 5 kg of rice.c. If the price of rice is 2 TL/kg how much would he have to pay for the first 5 kg thatthe consumer buys?d. How much is the consumer willing to pay to get his second 5 kg of rice (i.e., assumethat he already owns 5 kg of rice and would like to get 5 kg more)?e. What is his marginal benefit (i.e., at what rate does the consumer benefit) when hereceives his second 5 kg of rice.f. If the price of rice is 2 TL/kg how much would the consumer have to pay for 10 kg ofrice?g. What is the consumers’ net gain” (i.e., consumers’ surplus) if he bought 10 kg’s ofrice at a price of 2 TL/kg?h. What is the minimum about that the supplier would like to receive in order to supplythe first 5 kg of rice?i. What is the marginal cost (i.e., at what rate should the supplier be compensated tocover for his opportunity cost of supplying the good) of supplying the first 5 kg?j. If the price of rice was 2 TL/kg what would the suppliers’ revenue be?k. What is the minimum about that the supplier would like to receive in order to supplythe second 5 kg of rice (i.e., the supplier has already produced/supplied the first 5 kgand will supply 5 kg more)?l. What is the marginal cost (i.e., at what rate should the supplier be compensated tocover for his opportunity cost of supplying the good) of supplying the second 5 kg?m. If the price of rice was 2 TL/kg what would the suppliers revenue be?n. If the price of rice was 2 TL/kg how much revenue would the supplier make by supplying 10 kg of rice?o. What is the suppliers net gain” (i.e., producers surplus) if it supplied 10 kg of rice ata price of 2 TL/kg?p. What is the elasticity of demand corresponding to a price change between 2 TL and3 TL?q. What is the equilibrium price and quantity?

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