Thomas Edison State ECO 112 Week 4 Assignment

Assignment 4

1. Answer each of the following questions on supply and producer surplus.

a. What is producer surplus, and how is it measured?

b. What is the relationship between the cost to sellers and the supply curve?

c. Other things equal, what happens to producer surplus when the price of a good rises?

2. What happens to the gains from trade when a tax is imposed? How would a tax affect sales, supplier revenue, and consumer buying power?

3. Explain Arthur Laffer’s theory of tax rates relative to tax revenue. What is the effect of a tax on the deadweight loss?

Why is it sometimes difficult to predict what will happen when a tax rate is decreased or increased?