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Enron Mail |
Kate Symes
Student No. 569430668 1. The invention of the french fry would result in an increased demand for potatoes - that is, the demand curve for potatoes would shift outward. This would result in an increase in price, and a corresponding increase in supply. As the supply curve comes up to meet the new, higher demand curve, we would actually see an increase in overall demand, supply, AND price. The statement is wrong in assuming that increased supply equals a lower price. 2. a. The value of one bottle of beer to me between points A and B is 8 bottles of soda. b. I am therefore indifferent between bundles A and B, because they both allow me the same frequency of use and same level of satisfaction. c. Bundle E must include about 216 bottles of soda in order to make me indifferent between it and bundle D. This follows from the logic that, when I have 100 bottles of soda, it would take about 8 more to make me give up one bottle of beer in the bundle. Here I have 200 bottles of soda - I would need AT LEAST 8 bottles of soda to make me give up one more beer in another bundle with the same frequency of use. 3. Firstly, this legislation produces a disincentive for parents to travel with children on an airplane because it increases the already high costs associated with flying. Add to this the somewhat more relaxed rules of the highway, and you might find more families taking road trips on their next vacation. This is a potential secondary effect of the legislation which could actually increase injuries and fatalities - secondary because it would not be directly associated with injuries caused in airplane crashes, but because it would incent people to find other, possibly more dangerous, modes of transportation. 4. Auto safety legislation puts constraints on auto makers to make cars as safe as possible while still maintaining a profit. It also narrows consumers' choice sets when buying a new car. A person buying a car in a country with no auto safety legislation might make auto safety a priority in their decision. In a country indoctrinated by Nader's book, the choice between whether to buy a safe or unsafe car is taken away - all cars are made equally safe. Because of this, car-buyers have less incentive to drive safely and more leeway to choose their car for other reasons. Soon, safety in a car becomes a moot point and the car buyer is only concerned with a good price or other incentives. Auto accidents increase because there is no longer an incentive to drive safely - legislation has made cars, in consumers' minds, indestructible. If cars are indestructible, so then are the people in them. 5. a. My demand curve shows that I would purchase 1 gallon of soda at a price just under $10. So when I purchase 5 gallons at $5 a gallon, I am better of by $12.50. b. I can purchase 3 more gallons of Diet Coke when it is priced at $3 a gallon than when it's priced at $5. Therefore, I'm better off by $2.50 - a gain of 3 gallons times a decrease of $2 divided by 2. c. If Diet Coke was free, I'd consume up to 10 gallons of it before it wouldn't be worth it for me to consume anymore. My consumer surplus is $50. 6. a. A will sell chairs to B. A can make 5 chairs in the time it takes him to build 1 table, while B can only build 3 in the time it takes him to build a table. (A's chair-to-table time ratio is greater than B's - 1/2 to 1/3.) b. A will buy tables from C. C can make a table in only twice the amount of time it takes him to build a chair, while A takes five times as long to build a table than a chair. (A's table-to-chair time ratio is greater than C's - 5 to 2.) c. B will do neither. Since B can make chairs faster (rate of 1/3 for B to 1/2 for C), B won't buy chairs from C. And because C can make tables faster (rate of 2 for C to 3 for B), B can't sell tables to C. 7. a. The equilibrium price is $3.96. -10 + 50P = 200 - 3P 53P = 210 P = 210/53 $3.96 The quantity is 188 textbooks. -10 + (50)(3.96) = 188 200 - (3)(3.96) = 188 188 b. The sticker price becomes $6.79. -10 + 50(P-3) = 200 - 3P -10 + 50P -150 = 200 - 3P 360 = 53P P = 360/53 $6.79 The market quantity stays at 188 textbooks. c. The sticker price becomes $3.79. -10 + 50P = 200 - 3(P+3) -10 + 50P = 200 - 3P - 9 201 = 53P $3.79 Market quantity decreases marginally to 179 textbooks. d. If the seller pays $3 per book in taxes, the seller charges $6.79 and receives $3.79 per book. If the buyer pays $3 per book in sales tax, the buyer pays $3.79 per book. The costs are equal despite which party is paying the tax. e. The government collects $564 ($3 tax times 188 books) in tax revenues for this set of terms. 8. a. The equilibrium price is $42. -10 + 5P = 200 5P = 210 P = 42 The market quantity is 200. b. The sticker price becomes $210 - t. -10 + 5(P-t) = 200 -10 + 5P + 5t = 200 P = 210 - t c. The government takes in a tax revenue of 200t. There are deadweight costs associated with this tax because the supply is more elastic than the demand for insulin. Therefore, consumers will bear more of the burden of the tax. 9. a. Affects supply; supply curve will increase; price and quantity exchanged will increase b. Affects demand; demand curve will decrease; price and quantity exchanged will decrease c. Affects supply: supply curve will decrease: price will and quantity exchanged will decrease d. Affects supply: supply curve will increase; price will decrease, quantity exchanged will decrease e. Affects supply: supply curve will increase; price will decrease, quantity exchanged will decrease f. Affects demand: demand curve will increase; price and quantity exchanged will increase g. Affects demand; demand curve will decrease; price and quantity exchanged will increase h. Affects supply: supply curve will increase; price will decrease, quantity exchanged will increase
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