Author Question: What is the distinction between expected wealth and expected utility? What will be an ideal ... (Read 67 times)

jCorn1234

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What is the distinction between expected wealth and expected utility?
 
  What will be an ideal response?

Question 2

Use Figure 9-6 to answer questions a-i.
 
  a. Following the imposition of the tariff, what is the price that domestic consumers must now pay and what is the quantity purchased?
  b. Calculate the value of consumer surplus with the tariff in place.
  c. What is the quantity supplied by domestic sugar producers with the tariff in place?
  d. Calculate the value of producer surplus received by U.S. sugar producers with the tariff in place.
  e. What is the quantity of sugar imported with the tariff in place?
  f. What is the amount of tariff revenue collected by the government?
  g. The tariff has reduced consumer surplus. Calculate the loss in consumer surplus due to the tariff.
  h. What portion of the consumer surplus loss is redistributed to domestic producers? To the government?
  i. Calculate the deadweight loss due to the tariff.



amcvicar

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Answer to Question 1

Expected wealth is the money value of what a person expects to own at a point in time. Expected utility is the utility value of what a person expects to own at a point in time. These concepts both measure the value of what a person expects to own at a point in time but they differ because expected wealth is the money value and expected utility is the utility value.

Answer to Question 2

a. Price = 2.00 per pound; Quantity purchased = 15 million pounds
b. Consumer surplus = 1/2  15 million  3 = 22.5 million
c. Quantity supplied by domestic producers = 10 million pounds
d. Producer surplus to rice growers = 1/2  10 million  1.25 = 6.25 million
e. Quantity imported = 5 million pounds
f. Tariff revenue collected by the government = 0.50  5 million = 2.5 million
g. Loss in consumer surplus due to the tariff = 15 million  0.50 + 1/2  5 million  0.50 = 8.75 million
h. Amount redistributed to domestic producers = 7 million  0.50 + 1/2  3 million  0.50 = 4.25 million
Amount redistributed to the government = 5 million  0.50 = 2.5 million
i. Deadweight loss due to the tariff = 1/2  3 million  0.50 + 1/2  5 million  0.50 = 2 million



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amcvicar

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