Reference no: EM133494610

Problem

I. Pizza Demand and Supply

Use the demand and supply model to analyze the impact of the following events on demand, supply, price, and quantity of pizzas sold in pizza restaurants (such as Dominos, Pizza Hut and Papa Johns to name a few). For each of the events, i) Give a brief verbal explanation of the impacts of the event and ii) include a well-labeled graph. Insert your verbal explanation (typed) and graph (may be hand drawn; copied and pasted) in the space below each question.

1. The Ultimate Pizza Oven, for home use, is introduced and heavily advertised on TV.

2. Hourly wages decrease for restaurant workers.

II. Deadweight Loss of Market Interventions

Consider the following policies: a per-unit tax on a product, a price floor on a product, and a price ceiling on a product. Even though these three government policies are different and may have varying tradeoffs, they each produce a "deadweight loss," also known as "lost gains to trade."

Question 1. Give a definition of deadweight loss (DWL). If you cite an online definition not in the videos or textbook, please state the source.

Question 2. Why do each of the three policies produce deadweight losses? Give a brief explanation that addresses the common element.

Question 3. Illustrate your explanation in part b by giving a sketch of the deadweight loss arising from a price ceiling on a product. Label the graph well. Please insert your sketch (may be hand drawn) in the space below.

III. Fish and Chips

Emma and Ali each run a food truck selling fish and chips combos. Emma and Ali must each allocate 60 minutes between preparing fish filets and servings of "chips." A combo of fish and chips sells for $12. Emma's payoff is equal to $12 multiplied by the number of combos of fish and chips that she sells. The number of fish and chips combos that Emma sells is the smaller of the number of fish filets or the number of servings of chips that she has. Similarly, Ali's payoff is equal to $12 multiplied by the number of combos of fish and chips that he sells. The number of fish and chips combos that Ali sells is the smaller of the number of fish filets or the number of servings chips that he has. Suppose Emma and Ali can produce fish filets and servings of chips as shown in this table:

Emma can produce 2 fish filets per minute. Emma can produce 10 servings of chips per minute.

Ali can produce 8 fish filets per minute. Ali can produce 2 servings of chips per minute.

Question 1. Who has an absolute advantage in producing fish? Why?

Question 2. Who has an absolute advantage in producing chips? Why?

Question 3. Who has a comparative advantage in producing fish? Why?

Question 4. Who has a comparative advantage in producing chips? Why?

Question 5. Without being able to trade how many fish and chips combos can Emma produce?

Question 6. Without being able to trade how many fish and chips combos can Ali produce?

Question 7. Is there a trade that will make both better off? If a trade that would make both better off exists, describe such a trade. If there is not a trade that would make both better off explain why.

Question 8. How much better off are Emma and Ali by making the trade you propose? If there is not a trade that would make both better off explain why.