1.

Roman sees Californian red wine and cheese, both normal goods, as perfect complements. He consumes positive quantities of both. Then a bad year in the Napa Valley raises the price of Californian wine by 20%.

All else equal, Roman's consumption of cheese...

o...increases

o...remains the same

oDecreases

oThe answer cannot be determined

2.

Josh spends all of his money on instant ramen, an inferior good, and soda. He consumes positive quantities of both, and no other goods are available to him. A ban of trade with Mexico increases the price of soda by 20%, and does not affect the price of ramen. Josh's consumption of soda...

o...increases

o...remains the same

o...decreases

oThe answer cannot be determined

3.

You are asked to determine whether a group of private schools are behaving like a cartel. Demand for private schools is given by Q = 3000 - P, and schools are charging a price of P = 1000. There are no taxes or subsidies. Given this, it is clear that schools are...

o...behaving like a cartel

o...not behaving like a cartel

oThe answer cannot be determined

4.

The government wants to make sure all workers have healthcare so they are considering instituting a program where they tax firms $10 per worker to fund healthcare facilities for employees. Suppose the market demand curve for labor is given by D(p) = 100 - p and the market supply curve of labor is given by S(p) = p + H - 10 where p is the price of labor, and H is how much the workers value the health services when they are provided by the tax.

Find the equilibrium quantity and price without the tax and without the healthcare (H = 0).

P* =

Q* =

5.

Find the equilibrium with the $10 per worker tax and assuming the workers don't value the healthcare at all (H = 0).

p* =

Q* =

6.

Now suppose that in addition to the tax, the potential employees value the provided healthcare at $10 (H = 10). Find the new equilibrium. Consider intuitively whether and how the workers valuing the healthcare changes the deadweight loss created by the tax alone.

p* =

Q* =