1. Read Experts Warn of Backlash in Donald Trump's China Trade Policies. If elected President, Donald Trump would ask Congress to levy a tariff of up to 45% on certain goods coming into the U.S. from China (imports).
a) Assume that these certain goods are sold in competitive markets. Diagram the market (supply and demand curves) for one of the goods. Show the equilibrium price and quantity. Identify and expain the Consumer's Surplus. Identify and expain the Producer's Surplus. What is true of the general welfare of Americans?
b) Assume that Congress enacts a 45% tariff against the good and levies it on the seller's side of the market. Diagram the market (supply and demand curves) for the good. Show the equilibrium price and quantity. Add the tariff to the diagram. Show the new equilibrium price and quantity. What happens to the buyer's price? What happens to the seller's price? Identify and expain the Consumer's Surplus. Identify and expain the Producer's Surplus. What happens to the welfare of Americans as a result of the tariff? Explain the advantages and disadvantages of this tariff.
c) Assume that, instead of a tariff, Congress enacts a quota against the good which achieves the same market price and quantity. Diagram the market (supply and demand curves) for a good with the quota. Show the equilibrium price and quantity. Identify and explain the Consumer's Surplus. Identify and explain the Producer's Surplus. What happens to the general welfare of Americans as a result of the quota? Explain the advantages and disadvantages of a quota.
d) Assume that the Chinese government is unhappy with both the tariff and the quota because they negatively impact employment in China. What exchange rate policy can the Chinese government adopt to neutralize the negative impact of a tariff on its goods on Chinese employment? How would it effect its policy?
2. On November 5, 2014, Congresswoman Nita Lowey implored the House Republicans to raise the federal minimum wage to $10.10 per hour. In support, she argued, "Raising the minimum wage to $10.10 would take 1.7 million workers off public assistance and reduce government expenditures on current income-support programs by $7.6 billion per year."
a) Assume that public assistance is tied to a measure of absolute poverty. What is absolute poverty? Analyze whether Ms. Lowey's statement is correct if poverty is measured absolutely.
b) Assume that public assistance is tied to a measure of relative poverty. What is relative poverty? Analyze whether Ms. Lowey's statement is correct if poverty is measured relatively.
3. In an introductory paragraph, explain what a patent is and the rationale for patents. Then, read: Lifting the Patent Barrier to New Drugs and Energy Sources. Identify advantages of patents (in one paragraph) and disadvantages of patents (in another paragraph). In a fourth paragraph, logically deduce whether or not governments should sponsor patents or not.
4. Answer ONE of the following two questions:
a) The small upstate town of Geneva, NY, has 10 firms that make watches. The firms' respective output levels are 30 watches per year, 20 watches per year, 10 watches per year, 10 watches per year, 10 watches per year, 10 watches per year, 5 watches per year, and 5 watches per year. Calculate the four-firm concentration ratio for the town's watch-making industry. Calculate the Hirschman-Herfindahl Index (HHI) for the town's watch-making industry. SHOW ALL WORK! Based upon your calculation of the four-firm concentration ratio and the HHI, into which market model would you classify Geneva's watch-making industry? Explain. Based upon your classification of the market structure of the watch-making industry in Geneva, how would you predict that these companies will behave (compete)? What kind of price competition might you observe from these firms? What kind of non-price competition might you observe from these firms?
b) The small upstate town of Geneva also has 10 burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 20%, 18%, 14%, 9%, 8%, 7%, 6%, 6%, 6%, 6%. What is the four-firm concentration ratio of the hamburger industry in this town? What is the Hirschman-Herfindahl Index (HHI) for the hamburger industry in this town? If the second and third largest hamburger shops merged to form a single firm, what would happen to the four-firm concentration ratio and to the HHI? If you were a prosecutor in the Antitrust Divison of New York State Attorney General's Office, would you ignore or prosecute said merger? Explain.
5. Define and explain each of the performance criteria: allocative efficiency, productive efficiency, x-efficiency, profitability, redistribution of income, and dynamic efficiency. Now, diagram the long-run position of a firm in monopolistic competition and explain how well the firm stacks up against the ideal performance criteria.
6. Diagram and explain why Maria Sharapova, a white Russian tennis player, might earn nearly twice as much in endorsements as Serena Williams, an African-American with a much better win-loss record. What factors other than race might explain the difference in endorsement income?
7. Suppose that you hear two people arguing about energy. One says that we are running out of energy. The other counters that we are running out of cheap energy. Diagram and explain which person is correct and why. In class, Dr. Furfero intimated that neither person might be correct and that not only are we not running our of energy, but we are not running out of cheap energy. Why?