Answer these Q’s
1. In each of the cases that follow, why do you think the government might wish to change people’s behavior rather than allow their actions to be solely determined by individual choice?
2. A tax of $5 per pack is imposed on cigarettes
3. The government pays parents $100 when their child is vaccinated
4. The government pays college students to tutor low income children
5. The government taxes air pollution emitted by firms
2. Sketch a supply and demand diagram for the iphone 5 market with price on the vertical axis and quantity on the horizontal axis. Identify the equilibrium price and quantity. Show and explain what will happen to the equilibrium price and quantity if: the apple labor force unionizes and wages double. Given this result should the government regulate the price of iphones? What will happen if the government establishes a price ceiling for iphones that lies below the new equilibrium price? Is this result efficient? Fair? Why or why not?
3. Sketch a production possibilities frontier (PPF) with food on the horizontal axis and Housing on the vertical axis. Pay attention to the slope of your curve; it should illustrate increasing opportunity costs of food in terms of housing. Identify the combinations of food and housing that are feasible, but not efficient. Identify the combinations that are not feasible. Can you identify one policy that could be pursued today that might result in more food and housing for future generations?
4. The market demand curve for cake is Qd = 200 – P and the market supply curve is Qs = 50 + 2P. What is the market equilibrium price and quantity of cake? Illustrate using a supply and demand diagram with labels for points of interest. If the government institutes a price ceiling of $30, will there be a shortage or a surplus of cake? Calculate how large the resulting shortage or surplus is. Illustrate the price ceiling and resulting shortage or surplus in your diagram.
5. State precisely the (almost) laws of demand and supply and provide one example (in words not diagrams) of each law in operation. What are the “things” that are the same under the ceteris paribus assumption for each curve?