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Tutorial 2

The document contains four questions related to energy economics: 1. It asks to show the amount of subsidy required and deadweight loss if the government sets a maximum price for coal below the market equilibrium price. 2. It asks to calculate market outcomes like equilibrium quantities and prices, taxes paid, and deadweight loss under two scenarios of taxing LPG - a 20% ad valorem tax on producers and a 30% ad valorem tax on consumers. 3. It asks whether a subsidy on coal extraction by the Navajo nation would artificially lower coal prices and reduce its competitiveness, and to explain using a diagram. 4. It asks to calculate taxes paid by consumers and producers

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135 views1 page

Tutorial 2

The document contains four questions related to energy economics: 1. It asks to show the amount of subsidy required and deadweight loss if the government sets a maximum price for coal below the market equilibrium price. 2. It asks to calculate market outcomes like equilibrium quantities and prices, taxes paid, and deadweight loss under two scenarios of taxing LPG - a 20% ad valorem tax on producers and a 30% ad valorem tax on consumers. 3. It asks whether a subsidy on coal extraction by the Navajo nation would artificially lower coal prices and reduce its competitiveness, and to explain using a diagram. 4. It asks to calculate taxes paid by consumers and producers

Uploaded by

dewiayu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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School of Social Sciences

Universiti Sains Malaysia


Semester 1, 2020/2021

SEU337 Energy Economics

Tutorial 2

(1) Suppose that the government wants to protect the industry that uses coal as an input. Thus,
the government sets the maximum price in the coal market. The maximum price is less
than the market equilibrium price. If there is a shortage of coal in the market, the
government will subsidize so that the coal firm will sell the quantity demanded in the
market and that shortage can be eliminated. Using a diagram, show the amount of subsidy
required and the deadweight loss (if any). Explain.

(2) The government wants to reduce the use of coal in manufacturing plants. Suppose that
demand and supply in LPG market are

Qd = 40 – 5Pd invert → Pd = 8 – 0.2Qd


Qs = - 10 + 2Ps invert → Ps = 5 + 0.5Qs

(a) If an ad valorem tax of 20% have been imposed on producer price, calculate new
equilibrium quantity, producers price, consumers price, tax paid by consumers, tax
paid by producers, total tax collected by government, and deadweight loss. Use a
diagram to support your answer.

(b) If an ad valorem tax of 30% have been imposed on consumer price, calculate new
equilibrium quantity, producers price, consumers price, tax paid by consumers, tax
paid by producers, total tax collected by government, and deadweight loss. Use a
diagram to support your answer.

(3) A subsidy granted by the Navajo nation on each ton of low grade coal extracted from the
coal resources on its reservation would artificially reduce the price for coal and decrease
its competitive capacity in the coal market Do you agree? Explain by using a diagram.

(4) Suppose that demand and supply in the LPG market are:

Qd = 92.5 - Pd
Qs = -13.4 + 2Ps

(a) If a tax of 15 is placed on LPG, how much tax are paid by consumers? how much tax
are paid by producers? How much tax does government collect?

(b) What is the deadweight loss from the tax?

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