1.

Whatwouldhappentothestudyofeconomicsifscarcitydisappeared?

2.Defineopportunitycost.Whatistheopportunitycosttoyouofattendingcollege?Whatwasyouropportunity costofcomingtoclasstoday? 3.Underwhatconditionsmightgovernmentinterventioninaneconomyimprovethemarketoutcome? 4.Supposeweareanalyzingthemarketforhotchocolate.Graphicallyillustratetheimpacteachofthefollowing wouldhaveondemandorsupply.Alsoshowhowequilibriumpriceandquantityhavechanged. a. Winterstartsandtheweatherturnssharplycolder. b. Thepriceoftea,asubstituteforhotchocolate,falls. c. Thepriceofcocoabeansdecreases. d. Thepriceofwhippedcreamfalls. e. Abettermethodofharvestingcocoabeansisintroduced. f. TheSurgeonGeneraloftheU.S.announcesthathotchocolatecuresacne. g. Protestingfarmersdumpmillionsofgallonsofmilk,causingthepriceofmilktorise. h. Consumerincomefallsbecauseofarecessionandhotchocolateisconsideredanormalgood. i. Producersexpectthepriceofhotchocolatetoincreasenextmonth. j. Currently,thepriceofhotchocolateis$0.50percupaboveequilibrium. 5.Considerthefollowingpairsofgoods.Whichwouldyouexpecttohavethemoreelasticdemand?Why? a. waterordiamonds b. insulinornasaldecongestantspray c. foodingeneralorbreakfastcereal d. gasolineoverthecourseofaweekorgasolineoverthecourseofayear e. personalcomputersorIBMpersonalcomputers 6.Youownasmalltownmovietheatre.Youcurrentlycharge$5perticketforeveryonewhocomestoyour movies.Yourfriendwhotookaneconomicscourseincollegetellsyouthattheremaybeawaytoincrease yourtotalrevenue.Giventhedemandcurvesshown,answerthefollowingquestions.

a. Whatisyourcurrenttotalrevenueforbothgroups?

b. Theelasticityofdemandismoreelasticinwhichmarket? c. Whichmarkethasthemoreinelasticdemand? d. Whatistheelasticityofdemandbetweenthepricesof$5and$2intheadultmarket?Isthiselasticor inelastic? e. Whatistheelasticityofdemandbetween$5and$3inthechildrensmarket?Isthiselasticorinelastic? f. Giventhegraphsandwhatyourfriendknowsabouteconomics,herecommendsyouincreasethepriceof adultticketsto$8eachandlowerthepriceofachildsticketto$3.Howmuchcouldyouincreasetotal revenueifyoutakehisadvice? 7.TwodriversTomandJerryeachdriveuptoagasstation.Beforelookingattheprice,eachplacesanorder.Tom says,Idlike10gallonsofgas.Jerrysays,Idlike$10worthofgas.Whatiseachdriverspriceelasticityof demand? 8.Considerpublicpolicyaimedatsmoking. a.Studiesindicatethatthepriceelasticityofdemandforcigarettesisabout0.4.Ifapackofcigarettescurrentlycosts $2andthegovernmentwantstoreducesmokingby20%byhowmuchshoulditincreasetheprice? b.Ifthegovernmentpermanentlyincreasesthepriceofcigarettes,willthepolicyhavealargereffectinsmoking1 yearfromnowor5yearsfromnow? c.Studiesalsofindthatteenagershaveahigherpriceelasticitythandoadults.Whymightthisbetrue? 9.Explainwhythefollowingmightbetrue:Adroughtaroundtheworldraisesthetotalrevenuethatfarmersreceive fromthesaleofgrain,butadroughtonlyinRomaniareducesthetotalrevenuethatRomanianfarmersreceive. 10.Thegovernmentdecidedthatthefreemarketpriceofcheeseistoolow. a)Supposethegovernmentimposesabindingpricefloorinthecheesemarket.Drawasupplyanddemanddiagram toshowtheeffectofthispolicyonthepriceofcheeseandthequantityofcheesesold.Isthereashortageorsurplusof cheese? b)Farmerscomplainthatthepricefloorhasreducedtheirtotalrevenue.Isthispossible?Explain. c)Inresponsetofarmerscomplains,thegovernmentagreestopurchaseallthesurpluscheeseatthepricefloor. Comparedtothebasicpricefloor,whobenefitsfromthisnewpolicy?Wholoses? 11.Supposeatechnologicaladvancereducesthecostofmakingcomputers. a.Drawasupplyanddemanddiagramtoshowwhathappenstoprice,quantity,consumersurplus,andproducer surplusinthemarketforcomputers. b.Computersandaddingmachinesaresubstitutes.Useasupplyanddemanddiagramtoshowwhathappensto price,quantity,consumersurplus,andproducersurplusinthemarketforaddingmachines.Shouldaddingmachine producersbehappyorsadaboutthetechnologicaladvanceincomputers? c.Computersandsoftwarearecomplements.Drawasupplyanddemanddiagramtoshowwhathappenstoprice, quantity,consumersurplus,andproducersurplusinthemarketforsoftware.Shouldsoftwareproducersbehappy orsadaboutthetechnologicaladvanceincomputers? d.DoesthisanalysishelpexplainwhysoftwareproducerBillGatesisoneoftheworldsrichestman? 12.Thesupplyanddemandforbroccoliaredescribedbythefollowingequations: Supply: S(p)=4P80 Demand: D(p)=1002P. a. Graphthesupplycurveandthedemandcurve.Whatistheequilibriumpriceandquantity? b. Calculateconsumersurplus,producersurplus,andthetotalsurplusattheequilibrium. c. Ifadictatorwhohatesbroccoliweretobanthevegetable,whowouldbearthelargeburdenthebuyersor sellersofbroccoli? 13.Evaluatethefollowingtwostatements.Doyouagree?Whyorwhynot? a.Ataxthathasnodeadweightlosscannotraiseanyrevenueforthegovernment. b..Ataxthatraisesnorevenueforthegovernmentcannothaveanydeadweightloss.

14.Supposethatthegovernmentimposesataxonheatingoil.

a.Wouldthedeadweightlossfromthistaxlikelybegreaterinthefirstyearafteritisimposedorinthefifthyear? Explain. b.Wouldtherevenuecollectedfromthistaxlikelybegreaterinthefirstyearafteritisimposedorinthefifthyear? Explain. 15.Supposethatamarketisdescribedbythefollowingsupplyanddemandequations: O(p)=2P C(p)=300P a. Solvetheequilibriumpriceandtheequilibriumquantity. b. SupposethatataxofTisplacedonbuyers.Solvethenewequilibrium.Whathappenstothepricereceived bysellers,thepricepaidbybuyers,andthequantitysold? c. Useyouranswertopart(b)tosolveforthetaxrevenueasafunctionofT.GraphthisrelationshipforT between0and300. d. SolvefordeadweightlossasafunctionofT.GraphthisrelationshipforTbetween0and300. e. Thegovernmentnowleviesataxonthisgoodof$200perunit.Isthisagoodpolicy?Whyorwhynot?Can youproposeabetterpolicy? Nota:

Lucrareatrebuiesavaapartinainintrgime. Pondereatemeiinnotafinalaestede40%. Termendepredare:9.01.2012