Reference no: EM13745517

Based on what you learned in your book and in class, each of the following statements is false in some way. Use economic principles and concepts to explain why each statement is false. Use graphs and examples if you feel they will add to your explanation. 1 point each question

1. Measles has become an epidemic here in Orange County. About 1 in 1000 people will die after contracting the disease. Because this is such a high rate, health officials in Orange County would be well advised to pay for anyone to get a vaccination.

2. When prices fall, the best thing for suppliers to do is to produce more output to try to protect profits from falling.

3. Because a steep demand curve indicates prices can increase quickly when the quantity demanded rises only a little bit, steep demand curves represent goods that are very elastic.

4. When price controls are implemented, one group wins at the expense of the other group, but society as a whole doesn't suffer. For instance, when you raise the minimum wage, it simply represents a transfer from producers to workers, and has no real effect on total economic activity.

5. In order to create more revenues for government, taxes should be implemented on either wealthy individuals or on the luxury items they buy (i.e. jewelry, yachts, stocks and bonds, expensive cars) because they can afford them the most.

Section2 (make your answers fit on 1 typed, double sided page) Use the table to answer questions 6-12. Assume that the demand and supply relationships are linear between any two prices. For all questions, show some work that explains how you arrived at your answer, or provide a written explanation. Answers by themselves will not receive any credit.

6. What is the equilibrium price and quantity in the market?

7. What is the initial consumer surplus in the market? the initial producer surplus? 

8. A tax of $2 per unit is imposed onto the sellers in this market. Construct the new supply schedule and determine the new equilibrium price and quantity. If you cannot get the exact answer, then draw a graph that illustrates the new equilibrium for less points.

9. How much deadweight loss is associated with this tax?

10. Which side of the market bears more of the burden of the tax?

11. Calculate the tax revenue generated.

12. Calculate the elasticity of demand.Use the pre and post tax market equilibrium to calculate.

Use the table to answer questions 13-18. Assume that both demand and supply are linear between any two points. For all questions, show some work that explains how you arrived at your answer, or provide a written explanation. Answers by themselves will not receive any credit.

13. What is the equilibrium price and quantity in this market?

14. Suppose that the price of butter falls dramatically (due to lower butter production costs) so that the quantity demanded for bread increases by 40 units at any price. By how much does the price of bread change? By how much does quantity change?

15. ow imagine that after the shock, the government imposes a price ceiling so that the original price is the maximum price a firm can charge for bread. Describe the consequences of such a policy.

16. Suppose that bread buyers are forced to wait in long lines in order to buy bread.

If the value of their time can be estimated at $10/ hour, about how long would you expect people to be waiting in line to get a loaf of bread?

17. Do consumers benefit from the price ceiling? Use the concept of consumer surplus in your answer.

18. Suppose the government wishes to alleviate the problems caused by upward price pressure due to the price ceiling by taking all fresh bread off the market; all bread sold must be at least 1 day old. Would you expect this regulation to achieve the desired effect? Explain your answer?