The global tobacco industry has become increasingly concentrated in recent decades. On June 12, 2015, the second- and third-largest US cigarette makers, Reynolds American and Lorillard, merged. After the merger, the top three firms controlled 91% of the American market.

E1)What will happen to social welfare if the cigarette industry becomes a monopoly ?

a)The effect on social welfare is ambiguous

b)Social welfare will decrease

c)Social welfare will increase

E2)The government should set the income tax rate,...

a)...to the left of the peak of the Laffer curve (or at the peak).

b)...to the right of the peak of the Laffer curve (or at the peak).

c)...at the peak of the Laffer curve.

E3)Bugsy is the only loanshark in Miami. He is reviled throughout the community for his practice of charging higher interest rates to more desperate borrowers. Local consumer credit advocates lobby Miami's mayor to impose regulations on Bugsy.

If the mayor's objective is to increase social welfare by minimizing deadweight loss, what regulation should he enact?

a)Nothing; social welfare is already being optimized

b)The mayor should cap the maximum interest rate Bugsy can charge

c)The mayor should cap the number of loans Bugsy can make

d)The mayor should tax Bugsy's transactions

E4)There are three equally-sized distinct subpopulations in Utopolis: unemployed, workers, and retirees. There are four possible social states which result in different utility levels for the three subpopulations:

Unemployed Workers Retirees

Social state A 12 50 10

Social state B 20 20 20

Social state C 15 15 15

Social state D 1 40 1

Which social states might plausibly be chosen by the government ofUtopolis?

(Assume the government is neither evil nor stupid. Select each correct answer.)

a)Social state A

b)Social state B

c)Social state C

d)Social state D

e)None of the above

E5)There is a government election in Utopolis with two candidates: a Rawlsian and a Utilitarian candidate. Each candidate promises to enact one of the social states above.

If the candidate that wins the votes of a majority of citizens is elected, and if citizens vote in their self-interest, which social state will be enacted?

a)Social state D

b)Social state B

c)Social state C

d)Social state A