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1、EconomicsofOrganizationsandMarketsSolutionsmanualSanderOnderstal1Chapter1:OrganizationsandefficiencyExercise1.1–Welfarea)Theequilibriumpricecanbecalculatedbyequatingdemandandsupply:165?(?)=?(?)⇒150−2?=13?−15⇒?∗==1115Substitutingequilibriumpriceintoeitherthedemandorthesupplyfunction,wefindt
2、heequilibriumquantity:?∗=150−2×11=128b)Itisconvenienttouseboththeinversedemandandtheinversesupplyfunctions(thatis,supplyanddemandasafunctionofquantity):1151?−1(?)=?(?)=75−??−1(?)=?(?)=+?21313Theconsumersurplus(??)istheareabetweentheinversedemandcurveandtheequilibriumprice,therefore:(75−11)
3、×128??==4,0962Theproducersurplus(??)istheareaabovethesupplycurveanduptotheequilibriumprice:15128128×648,192??=(11−)==≈630.151321313Thewelfareisthesumofconsumerandproducersurplus:?=??+??=4,096+630.15=4,726.15c)Thetaximpliesadifferencebetweenthepricetheconsumershavetopayandthepricetheproduce
4、rsreceive.Anintuitivewaytoseeitistoassumethatthetaxisimposedtothesupplier.Inturn,thepricefortheconsumerswillincreaseinsuchawaythat:??=??+7.5Inwords,thedemandpricepdisequaltothesupplyprice??,plusthetax(Note:ifthetaxwasimposedontheconsumers,theresultwouldhavebeenequivalent).Substitutingthisc
5、onditionintotheequilibriumequationweobtain:?(?)=?(?)⇒150−2(?+7.5)=13?−15⇒15?=150⇒?∗=10????Andthus,?∗=10+7.5=17.5?Tofindtheequilibriumquantity,substitutethesupplypriceintothesupplyfunction(or,alternatively,thedemandpriceintothedemandfunction):?(10)=13×10−15⇒?∗=?∗=115??Thewelfarelossis:1??=(
6、17.5−10)×(128−115)×=48.7522d)Thenewconsumersurplusis:(????−??)×?1??==(75−17.5)×115×=3,306.2522Themunicipality’staxrevenuesare:?=?×?=7.5×115=862.5Ifthemunicipalityredistributesthetaxrevenuestotheconsumers,therevenueswillbecomepartoftheconsumersurplus:??????????=3,306.25+862.5=4,168.75>4,096
7、=???????????Therefore,consumersarebetteroff.Exercise1.2–Utilityandconsumersurplusa)Tofindthe“stomachachethreshold”,setJeremy’sutilityequalto0:?2?10?−=0⇒?(10−)=022Itcanbeeasilyfoundthatthisequationhastwosolutions:?=0and?=20.Therefore,Jeremygetsastomach-achewhen
