1. Suppose Lauren has income Y and preferences over video games (vg) and tacos (t). Her budget constraint is given by Y = pvv + ptt where c and t denote the amount of computers and tacos consumed. suppose Lauren has a total of $300. The price of video games is ($15) and the price of tacos is ($5). How many video games could she buy if she spent all her money on games; how many tacos if she spent all her money on tacos.. Write down the conditions for utility maximization and show in a graph the point where they are satisfied. What is the MRS at this point? Please fully label the graph. Suppose the price of tacos increases. Explain in words and in a graph what you would expect to happen (hint: income and substitution effects may apply.) 2. Under what circumstances might the government want to intervene in the private market? 3. Explain briefly why redistribution can sometimes result in an "equity - efficiency tradeoff " 4. One rationale for imposing taxes on alcohol consumption is that people who drink alcohol impose negative spillovers (externalities) on the rest of society. If this rationale is correct, in the absence of governmental taxation, will people tend to consume too much, too little, or the right amount of alcohol? 5. Can an activity generate both positive and negative externalities at the same time? Give an example. 6. Answer the following questions for each of the following examples: Smoking by individuals Toxic waste production by firms Research and development by a tech firm Individual vaccinations 7. Describe how the amount and type of federal government spending has changed over the last since the end of WWII. Explain briefly why the composition of this spending has changed in the way it has.