questions are below

Economists are often concerned with the free-rider problem. a. What is meant by free riding? Explain with an example. b. Are public parks subject to the free-rider problem? What about keeping city streets clean? Explain your answer. 19 42 11 Identify the cause and the effect in the following examples: a. A rise in the worldwide price of peaches and a drought in California. b. A surge in cocoa prices and a pest attack on the cocoa crop that year. In 2014, California was in its third year of a major drought. With water supplies dwindling, Governor Brown issued a plea for a voluntary 20 percent reduction in water use. This target was not reached. In early 2015 Governor Brown issued an executive order requiring local water agencies to reduce water use by 25 percent, but no enforcement mechanism was specified. No taxes or fines were in the executive order. State officials hoped that they could achieve compliance without resorting to fines. a. From an individual homeowner's perspective, what are the costs and benefits of using water during a drought? Why do you think that the voluntary reduction order in 2014 didn't work? b. Using concepts from this chapter, explain how you might get individual homeowners to reduce water use during a drought. C. Eventually, many communities began levying fines on water use. However, while many middle income families dramatically cut water use, wealthy households cut back their water use relatively little. How can you explain this phenomenon from an economic perspective? 23 251 5 As the text explains, it can sometimes be very difficult to sort out the direction of causality. a. Why might you think more police officers would lead to lower crime rates? Why might you think that higher crime rates would lead to more police officers? b. In 2012, the New England Journal of Medicine published research that showed a strong correlation between the consumption of chocolate in a country and the number of Nobel Prize winners in that country. Do you think countries that want to encourage their citizens to win Nobel Prizes should increase their consumption of chocolate? C. A recent article in the Journal of Applied Physiology found that elderly runners had healthier muscles than a comparison group of the same age. Although the members of the comparison group were all still living independently, they had lower muscle mass and muscle strength than the athletes. The popular press framed the article as proof that exercise causes people to be healthier. Is that the only way to interpret causality in this example? The chapter shows that as a general rule people with more education earn higher salaries. Economists have offered two explanations of this relationship. The human capital argument says that high schools andcolleges teach people valuable skills and employers are willing to pay higher salaries to attract people with those skills. The signaling argument says that college graduates earn more because a college degree is a signal to employers that a job applicant is diligent, intelligent, and persevering. How might you use data on people with 2, 3, and 4 years of college education to shed light on this controversy? 38 2415 Your total benefits from consuming different quantities of gasoline each week are shown in the table below: Gallons per Week Total Benefit Marginal Benefit 0 0 1 8 15 21 26 5 30 33 35 36 a. Complete the marginal benefit column. b. Gasoline currently costs $4 per gallon. Use the Principle of Optimization at the Margin to find your optimal number of gallons of gas to consume each week. C. Some people have suggested a tax of $2 per gallon of gas as a way to reduce global warming (burning fossil fuels such as gas releases greenhouse gases which are a major cause of rising temperatures). Suppose the price of gas rises to $6 per gallon. Use the Principle of Optimization at the Margin to find your optimal number of gallons of gas given this new tax on gas. It is possible to use equations to do marginal analysis. Suppose your firm has a marginal revenue given by MR = 10 - Q. This means that the seventh unit of output brings in 10 - 7 = $3 of additional revenue. The marginal cost for your firm is MC = 2 + 0. This means that the seventh unit of output increases cost by 2 + 7 = $9. . Is it a good idea to produce the seventh unit of output? Why or why not? b. Find the Q that sets marginal cost equal to marginal revenue (MC=MR). As a preview of upcoming chapters, try to explain why this value maximizes profit. 43 42 9 How do the following affect the equilibrium price in a market? a. A leftward shift in demand b. A rightward shift in supply C. A large rightward shift in demand and a small rightward shift in supply d. A large leftward shift in supply and a small leftward shift in demandE ly= At Explain how simultaneous shifts in demand and supply curves could explain these situations: The price of insulin injection kits, used by diabetic patients, increases from $45 to $52, but the equilibrium quantity remains the same. b. A pest attack on the tomato crop increases the cost of producing ketchup. A mild winter causes cattle herds to be unusually large, causing the price of hamburgers to fall. The equilibrium quantity of ketchup is unchanged. IIly= At Lobsters are plentiful and easy to catch in August but scarce and difficult to catch in November. In addition, vacationers shift the demand for lobsters further to the right in August than in any other month. Compare the equilibrium price and quantity oflobsters in August to the equilibrium price and quantity of lobsters in November. Present and discuss a supply-and-demand diagram to explain your answers. 43 2X1 14 Note: This problem requires some basic algebra. The demand for computers is OD = 15 - 2P, where P is the price of computers. Initially, the supply of computers is Os = P. a. Find the original equilibrium price and quantity. Suppose the prices of memory chips and motherboards (two important components in computers) rise and as a consequence, the supply curve for computers becomes Qs = -3 + P. Find new equilibrium price and quantity. Consider the following figures where the light blue line (lighter line in black and white) is the original budget constraint for a consumer and the darker line is the new one. Examine each case and explain what could have caused the change. Price Quantity of good Y 0 Quantity of good X Quantity (a)Price Quantity of good Y 0 0 Quantity of good X Quantity (b) Price Quantity of good Y 0 0 Quantity of good X Quantity (c) 53 22 6 Consider the following supply and demand dia gram: Price S A C Quantity of good X Quantity Identify which of the three areas labeled A, B, and C represents consumer surplus in this market. You get a new job in a tropical climate and so you need to buy shorts ($) and t-shirts (). Your budget constraint is given by $20s+ $51 =$60. a. Based on this formula, what must be the price of a t-shirt? In other words, how much does one t-shirt cost? Complete the following table, which shows several options that fall on your budget constraint. C. Plot the budget constraint, with shorts ($) on the x-axis and t-shirts () on the y-axis.d. What is the opportunity cost of shorts, in terms of t-shirts? Bundles on the Budget Constraint Bundle Quantity of Shorts (s) Quantity of T-shirts (t) A 0 B 1 C N D 3 Consider the following demand schedule: Price Quantity $9 $11 48 $13 40 a. Use the midpoint formula to calculate the elasticity of demand (i) when price rises from (i) $9 to $1 1 and (ii) when price rises from $1 1 to $13. b. When price rises from $9 to $1 1, does expenditure rise, fall, or remain constant? What about when price rises from $1 1 to $13? C. Why should you have anticipated your answers to (b) once you had answered part (a )? You work at a convenience store and make note of changes to sales after the price of liquid soap unexpectedly increases by 10%. You notice that sale of shampoo goes up by 5%; and sale of lotion goes down by 2%. Calculate the cross-price elasticities, and comment on whether each product is a substitute for soap or a complement for liquid soap. 63 42 4 Use a graph to show the relationship between the marginal cost curve and the average total cost curve for a competitive firm. What can you conclude about average total cost when marginal cost is less than average total cost? 68 42 5 Why is it that the industry demand curve slopes downward when the demand curves faced by individual firms in perfectly competitive markets are horizontal?S ly= A9 Every candle maker in Town A must have a license. The cost of a license is the same regardless of the number of candles a business produces. Assuming that the candle market is perfectly competitive: 1. Does this license shift a candle maker's short-run average fixed cost curve? ii. Does this license shift a candle maker's short-run average variable cost curve? ii. Does this license shift a candle maker's short-run profit maximizing choice of the number of candles to produce? b. Candle makers in Town B do not need a license. Town B, however, has passed a new minimum wage law that increases the wages that candle makers in Town B pay their workers. Assuming that the candle market is perfectly competitive: i. Does this minimum wage shift a candle maker's short-run average fixed cost curve? Ti. Does this minimum wage shift a candle maker's short-run average variable cost curve? ili. Does this minimum wage shift a candle maker's short-run profit maximizing choice of the number of candles to produce? 68 2X1 13 Suppose Total Cost is given by TC = 16 + 02. This implies that Marginal Cost is MC = 20. a. Give the formula for ATC. b. If the market price were $5, how many units of output would this firm want to supply? c. What will the price be in the long run