ECONOMICS (Coursework Sample)

Problem Set #1 1a. Consider the market for beef shown in the graph below. lefttop 1a. State the ‘equilibrium price and quantity' of beef? The price is $10 while the quantity is 1000 units marked by the intersection point. 1b. Suppose the government is considering imposing a price ceiling of $5 on beef. How much beef will be exchanged if the law is strictly enforced? If a price ceiling of $5 is imposed, the equilibrium quantity will reduce to 500 units. 1c. As a result of the policy, how much wealth was transferred from beef producers to beef consumers? Shade the rectangle on the graph. 1d. As a result of the policy, what was the deadweight loss associated with the sales that were prevented by the regulation? 15-5= 10. The dead weight created accounts in a $10 loss, which is a loss of economic efficiency due to the imposition of price ceilings by the government. 1e. Assume that chicken is a substitute for beef and its price is not regulated. Draw the supply and demand curve for chicken before the price ceiling was imposed on the beef market and label your equilibrium point "a”. Then add a new demand curve to show what happens afterward and label your new equilibrium point "b”. 152400989330 -29432258891a00a -172402533020b00b 1f. Based on your diagram, would you expect chicken producers to support the regulation of the beef market? Why? Based on the above diagram, the chicken producers would not support the price regulation. Many people who previously bought beef would have chicken as a substitute. However, imposing a price ceiling less than the original price means a reduction in the price of beef that would attract the potential chicken consumers to the beef market, thus they would lose a significant number of clients. Problem Set #2 3905251118870002a. Bob enjoys eating donuts and drinking coffee. In fact, that's all he does. His weekly budget is $100, and the price of donuts is $1 per can, and the price of coffee is $2 each. Using the vertical axis for his coffee consumption and the horizontal axis for his donut consumption, draw his budget constraint. -564197381000Coffee00Coffee952557150 952511303000 1924050407670I.C00I.C 3171825467995Donuts00Donuts8890473075 2b. Add a plausible indifference curve to your diagram that shows Bob's optimal quantity of donuts and coffee. What is his marginal rate of substitution of donuts for coffee at that point? The MRS is the rate with which a person is willing and able to forego the utility of one item so as to consume the next and still maintain the same level of satisfaction acquired. In the above case, the marginal rate of substitution is ½ = 0.5, which is the MRS. 2c. Suppose that the government, in an attempt to reduce obesity, places a tax of $1 on donuts. Sketch Bob's new budget constraint. -568960442595Coffee00Coffee9525577850 952510477500952511430000 65722537846000 89535040640000 283845061595Donuts00Donuts952461595 2d. How does the price regulation affect Bob's total utility? How does it affect his donut consumption? A tax imposition by the government means that the price of donuts will increase. This reduces the quantity with which Bob can efficiently buy. Therefore, a tax imposition will result in a decrease in the amount of donuts that Bob can purchase given that the disposable income remains constant. A shift in the budget constraint will happen to the left, which means that his utility function gets reduced. Thus, his total satisfaction caused by his purchase of donuts will be reduced. Problem Set #3 3a. What is the rationale for this policy? The justification of this policy can be explained using paternalism. Through it, a state or an organization limits the liberty given to the people or a group for their sake. The U.S. government decides that it will undertake measures to control the supply and demand of sugar. If it allowed the entry of cheap imported sugar, the price of sugar would fluctuate and this would affect its domestic producers. On the other hand, if the local producers were given autonomy to dictate the prices, they would hike the price of domestic sugar, and this would disadvantage the local consumers. Therefore, the move of the government is to protect the interest of its producers and consumers by giving them limited choices. 4314825833755Corn Syrup00Corn Syrup752475951865Sugar00Sugar3b. Trace the effects of this policy by sketching supply and demand diagrams for sugar and corn syrup (a substitute for sugar). Start with an " equilibrium" and then show what happens when the policy of sugar quotas is introduced. 12287251708155343525104775S300S341433751041400951865170815164782519050New supply00New supply485775103505003091180161925Price00Price-71755280670price00price373380017081436290241708153476625184150342900104139 31432521018514382752108200-76200224790P200P21041402032000014382752006600048577533020008763001568451647825213995219011535560Initial supply00Initial supply 1590675409575002857500215265a00a342900374652105025109220b00b 87630045783518954751149352095500369570Do00Do2362200116840D100D1-104140144145P100P115900401708155667375445770D200D26010275144145D300D3 1514475330200S100S11056005329565S200S22152650292100Quantity00Quantity5238750311150Quantity00Quantity347662530099034290030226000 When the government decides to impose the quota system, it regulates the supply of sugar in the U.S. economy. The supply curve shifts inwards from the initial to the new supply curves. A reduction of supply will increase the price, but due to its scarcity, the demand does not decrease, rather it increases from D0 to D1. The equilibrium positions shift from point a to b causing an increase in equilibrium price and the equilibrium quantity changes from S1 to S2. Besides, the increase in the price of sugar will make some people demand more of corn syrup, increasing its demand from D2 to D1. 3c. Evaluate the sugar quota in terms of 3 types of efficiency: * In the product mix. Is this combination of sugar and corn syrup preferred by consumers? If there is a deadweight loss, show it on your supply and demand diagrams. Fewer consumers prefer the combination of sugar and corn syrup. These two goods are not perfect substitutes as indicated above. An increase in sugar prices will not make many of its consumers ought for corn syrup as a replacement. The...