ECON 112 EXAM 2

Exam #2 Econ 112 SS16

1. Using the graph below, explain why demand for nachos is elastic. (5 points)

2. On the graph below, implement an excise tax (of any amount) on the market for steel.

a. Who will pay most of the tax – producers or consumers? (5 pts)

b. Show tax revenue on the graph, making sure to label the area. (5 pts)

c. Show deadweight loss on the graph, making sure to label the area. (5 pts)

d. Show consumer surplus on the graph (after the excise tax is imposed). (5 pts)

e. Show producer surplus on the graph (after the excise tax is imposed). (5 pts)

3. Why is deadweight loss bad for society? (10 pts)

4. The president of the USA decides that the heroin epidemic in our country can best be solved by decriminalizing recreational use of the drug and implementing a heavy excise tax on production – in hopes of decreasing its consumption. The graph below represents the national heroin market.

a. Is the president’s plan a good one? Explain why or why not. You may use the graph in your explanation. (It’s recommended that you include elasticity in your answer). (10 pts)

b. Can you think of a better plan? Describe it. (5 pts)