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According to studies undertaken by the US Department of Agriculture, the price elasticity of demand for cigarettes is between – 0.3 and – 0.4 and the income elasticity is about + 0.5. Suppose Congress, influenced by studies linking cigarette smoking to cancer, plans to raise the excise tax on cigarettes so the price rises by 10%. Estimate the effect the price increase will have on cigarette consumption and consumer spending on cigarettes (in percentage terms). Suppose a major brokerage firm advised its clients to buy cigarette stocks under the assumption that, if consumer incomes rise by 50% as expected over the next decade, cigarette sales will double. What is your reaction to this investment advice?
Illustrate what will occur to the equilibrium price also quantity of guitar strings
What happened to the Leontief paradox when human capital embodied in U.S. exports was accounted for as a separate factor of production? Does this help to explain why college graduates might favor international trade more than those with significantly..
Why the incidence of the tax a consideration when government imposes this tax increase.
The Sequester is probably a bad idea. Use the IS-MP model to explain what should happen to the economy if the government cuts spending by 1 percentage point of potential GDP.
What role does elasticity have on decisions made in the market? How does the availability of substitutes affect the price elasticity of demand? Explain using examples from your experiences.
Illustrate what will be the new equilibrium price, if the government puts a 15 cent per tax on the candy.
Explain how does one construct a linear (or other mathematical program) to solve a competitive or walrasian equilibrium problem.
Suppose that the Fed permanently increases the growth rate of the money supply. According to the Friedman effect as discussed in class, what will happen to both nominal and real interest rates in the short-run? In the long-run? Explain why.
The Federal Reserve chooses how much banks lend. The Federal Reserve serves as a lender of last resort. The federal reserve loans money to banks.
How did Adam Smith justify the new economic system which was later to be called capitalism? Explain the difference between a movement along a demand curve and a shift in the demand curve. Briefly explain and graphically present four factors that can ..
Suppose two firms sell an homogeneous product; they compete in prices. Their respective marginal costs are MC1(q) = 10 and MC2(q) = 20. Find the prices that form an equilibrium (for simplicity and reality, assume that prices are quoted in units no sm..
Identify those who gave us the concepts of monopsony and human capital.
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