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The government's focus on supply reduction efforts in its 'war on drugs' has been relatively unsuccessful in addressing illegal drug use. Some economists believe that a successful anti-drug program must concentrate on reducing demand; for example, through drug education and voluntary treatment programs for addicts.
a. Suppose the price elasticity of demand for cocaine is -0.5. What will happen to the equilibrium price, quantity and total revenue from cocaine sales if the government succeeds in its efforts to reduce demand? What is likely to happen to the incentive to sell cocaine?
b. Suppose the government continues to concentrate its efforts on supply reduction and is able to reduce the supply of cocaine. As a result of the reduction in supply the price of cocaine increases by 25 percent. If the price elasticity of demand is -0.5, what is likely to happen to the incentive to sell cocaine?
c. Based on your answers, explain why one approach might be preferred over the other.
Plot the MC curve on the same graph as the ATC curve, and verify that it cuts the ATC at its minimum point.
A college student is considering whether to operate a lawn-mowing business for the summer or work in a business owned by his family. His time is worth $w1 per our and he can work as many hours as he chooses in the family business at this rate.
The only policy tools available to central banks are interest rates and the money stock.
Suppose that the two firms compete in output and set their output levels simultaneously. Given that firm 1's reaction curve is Q1 = 150 - 2Q2 and firm 2's reaction curve is Q2 = 150 - 2Q1, what are the two firms' output levels in equilibrium.
To block entry, the incumbent appeals to the government to require that the entrant incur extra costs. What happens to the Cournot equilibrium if the legal requirement causes the marginal cost of the second firm to rise to that of the first firm
Making dresses is a labor-intensive process. Indeed, theproduction function of a dressmaking firm is well described by theequation Q = L - L2/800, where Q denotes the number of dresses per week and L is the number of labor hours per week.
Suppose Thimajigs have a variable cost of $10 per unit and currently sell for $25. Price elasticity of demand for Thimajigs Et = -3.0 (A) Is the firm charging the optimal price for Thimajigs Demonstrate how you know.(B) Should the price be changed I..
Determine the uniform quarterly series in quarters 0 through 12 of a cash inflow of $5,000 in quarter 1; $10,000 in quarters 2 to 5; and $12,000 in quarters 6 - 12 with an interest rate of 15 %.
The cross-tabulation below classifies US states by median household income and by household Gini coefficient (a measure of income inequality). Use the cross-tabulation to answer the questions that follow.
suppose two types of consumers exist, a more affluent group (1) with an estimated price elasticity for biscuits of -2 and a less affluent (2) with an estimated price elasticity for biscuits of -2.5. Pillsbury puts a posted price of a particular am..
a. What is the real value of output (Q) Now assume that the Fed increases the money supply by 10 percent and velocity remains unchanged. b. If the price level remains constant, by how much will real output increase.
Determine the economic activity that takes place in Underground Economy have any impact upon any Economic Indicator.
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