Assignment:
Question 1
After a major earthquake struck Los Angeles in 1994, several stores raised the price of milk to over $6 per gallon. The local authorities announced that they would investigate and that they would enforce a law prohibiting price increases of more than 10% during emergency period. What is the likely effect of such a law?
Question 2
Is it possible that an outright ban on foreign imports will have no effect on the equilibrium price?
Question 3
Arthur spends his income on bread and chocolate. He views chocolate as good but is neutral about bread, in that he does not care if he consumes it or not. Draw his indifference curve map.
Question 4
Sofia will consume hot dogs only with fries. Draw her indifference curve map.
Question 5
Don spends his money on food and operas. Food is an inferior good for Don. Does he view an opera performance as an inferior or normal good? Explain why.
Question 6
Prescott (2004) argues that US employees work 50% more than German, French, and Italian employees because they face lower marginal tax rates. Assuming that workers in all four countries have the same tastes toward leisure time and goods, must it necessarily be true that US employees will work longer hours? Explain why. Does Prescott's evidence indicate anything about the relative sizes of the substitution and income effects? Why or why not?
Question 7
What is the long-run welfare effect of a profit tax (the government collects a specified percentage of a firm's profit) assessed on each competitive firm in a market?
Question 8
Can a firm be a natural monopoly if it has a U-shaped average cost curve? Why or why not?
Question 9
Many universities provide students from low-income families with scholarships, subsidised loans, and other programs so that they pay lower tuitions than students from high-income families. Explain why universities behave that way.
Question 10
Spencer's Superior Stoves advertises a one-day sale on electronic stoves. The ad specifies that no phone orders are accepted and that the purchaser must transport the stove. Why does the firm include these restrictions?
Question 11
Your university is considering renting space in the student union to one or two commercial textbook stores. The rent the university would charge depends on the profit (before rent) of the store or stores and hence on whether there is a monopoly or a duopoly. Which number of stores is better for the university in terms of rent? Which option is better for the students? Explain why.
Question 12
Will the price be lower if duopoly firms set price or if they set quantity? Under what conditions can you give a definitive answer to this question?