Project #995 - Economics worksheet

DUE: Morning of October15

 

IMPORTANT:  Placeyouranswersintheareaindicated.Problemsetanswersmustbeonthissheettobegraded.

 

1.      (2 points total)  In the novelRoll ofThunder,HearmyCry,author MildredTaylor describes life inthe early 1930s for African- American farmingfamiliesin Mississippi.One store providesfood, cloth, feed, seed, fertilizer, and othersupplies to thefamilies: the Wallace family store, owned by the Wallace’s, a white family.Thereare no other stores inthe community.The closest alternative store isa full day’s travel away.  When onefamily organizesothers in an attempt to boycott theWallace store, there isa violent responsefrom the whitecommunity.In short, the Wallace store is a profit-maximizinglocal monopolist.Suppose theWallace store faces thedemand schedule andcost information depicted in thetable.Let’s simplify:call what theWallace store sells “goods.”

 

quantity sold peryear (thousands)

pricebuyers willing to pay ($)

TR (thousands of dollars)

MR ($)

Total Cost (thousands of dollars)

MC ($)

AC ($)

0

 

 

 

10

 

 

1

20

 

 

 

16

 

2

19

 

 

 

10

 

3

18

 

 

 

12

 

4

17

 

 

 

14

 

5

16

 

 

 

16

 

6

15

 

 

 

18

 

 

a.      Fill in the chart.  Draw the graphbelowthat depicts the Wallace Store.Labeleverythingclearly.

 

b.      What is the Wallace Store’s profit-maximizing price andquantity sold?

 

 

 

What is the annual profit earned by the Wallace Store?

 

 

 

c.      Howdo the Wallacesprotect their profits from competition?

In thelong run, can theWallace family continue to earn the

level of profit found inpart (b)?  Why or why not?


 

2.      (2 points total) Smoking isa nasty habit that inflicts costs on others.Second hand smoke makes some people wheeze and gives others lung cancer, killing them. Smokersget sick a lot more than non-smokers, and die long, slow, cruel deaths from emphysema or lung cancer .

. . diseasesthat put a strainon the nation’s health system.

 

 

a.      At the right, draw a graph thatillustrates thenegative externality associated with smoking.The quantity”is measuredin packs of cigarettes.  Show the private optimum andthe social optimum.

 

 

b.      States assesscigarette taxes, increasing thecost of a pack of cigarettes.Under what conditionswill thetax generate thesocially optimal quantity of cigarettes sold?Is the socially optimal quantity of cigarettesequal to zero?

 

 

 

 

 

 

 

 

 

c.      The averagetax inthe United States is about $1.50 per pack.But different states have different cigarette taxes.  Stateswith high median income but also high Ginicoefficients have relatively hightaxes.For instance, Connecticut assesses $3.40 per pack (median income $65,400; Gini = 0.49).  States with lowmedian income have relatively low cigarettetaxes.For instance, Louisiana assesses

$0.36 perpack (medianincome $40,700, Gini= 0.48).FYI, a spreadsheet with all theinfo by stateis on theEcon 1 website.

 

Is it necessary to have a highertax inhigherincome states (vs. a lower tax inlower income states) in orderto move high-income state’s cigarette consumption closer to thesocial optimum?Explain.


                                                                                                                                                                                                                                        Page 3 of 4

3.      (2 points total) Thereis one producer of “a Berkeley education: U.C. Berkeley. a.         Can U.C. Berkeley price discriminate?Does it?Howso?

 

 

 

 

 

 

 

 

b.      What is the economic justification for public subsidies of highereducation?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

c.      The stateof California providespublic financial support for public collegesand universities: community colleges, the CSU campuses, and the UC campuses.  Butthe state does not providefinancialsupport for private colleges and universities such as USF, Stanford, USC, University of Phoenix, andthe Claremont Colleges.Why might the statesupport some colleges & universities andnot others?


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