Reference no: EM131244281
Maggie likes her cigars. Her demand for cigars is MRSXC = 60−C, where X is the amount of money for all other goods she is willing to give up for an additional cigar. Rui only consumes X, but for each cigar Maggie smokes, Rui’s cost is MRSXC = −3C, i.e., the marginal external cost to Maggie’s cigar smoking is 3C to Rui.
(a) How many cigars would Maggie be allowed to smoke in the social optimum?
(b) If Maggie is allowed to smoke as many cigars as she wishes, how many cigars will she smoke? What is the total benefit Maggie obtains? What is the total cost Rui suffers? What is the dead-weight-loss relative to the social optimum?
(c) Suppose a law is passed which makes cigars illegal, so that C = 0. What is the total benefit Maggie obtains? What is the total cost Rui suffers? What is the dead-weight-loss relative to the social optimum?
(d) The law is now before a judge, whose only concern is to find the solution that maximizes the joint welfare of Maggie and Rui, but whose only recourse is to either declare the law legal or not. Explain how transactions costs should affect the Judge’s decision.
(e) Suppose that after the tax has been imposed, an itinerant economist is hired to study the situation and her report states that transactions costs are zero. Given this conclusion, what would be her recommendation as to the value of the tax on cigars? Explain.
A decrease in demand means that
: A "decrease in demand" means that..
|
Jurisdiction to implement a soda tax
: In March 2015, Berkeley became the first US jurisdiction to implement a soda tax. Draw a supply-demand graph which shows the eject of the tax on quantities and prices. In the graph, identify the change in surplus to the buyers of soda, the change in..
|
Deadweight loss of commodity taxation
: Deadweight Loss of Commodity Taxation In March 2015, Berkeley became the first US jurisdiction to implement a soda tax. This question is designed to think about the impacts of this tax. Let the price of soda in Berkeley be equal to P per ounce. Usin..
|
Adjusted gross income
: Kris, age 49, is unmarried, Her daughter, Katherine, age 26, is a graduate student at Kansas University. Kris paid for 80% of the cost of Katherine's schooling in 2016, including tuition of $20,000. Katherine earned $5,000 as a graduate assistant at ..
|
What is the dead-weight-loss relative to the social optimum
: Maggie likes her cigars. Her demand for cigars is MRSXC = 60−C, where X is the amount of money for all other goods she is willing to give up for an additional cigar. How many cigars would Maggie be allowed to smoke in the social optimum? Suppose a la..
|
There is an increase in the number of buyers of good
: There is an increase in the number of buyers of good X. As a result, the _____________ curve for good X will shift ____________ resulting in a(n) _____________ in the equilibrium price of X and a(n) ____________ in the equilibrium quantity of X.
|
Impact of the latest survey on price level expectations
: The board of the central bank is analysing the impact of the latest survey on price level expectations. They have found that people and businesses now expect a higher price level than they did previously. The board would like to know what impact this..
|
Consider pet food manufacturer that sells to retailers
: How can a company identify customers when those customers don't talk to its representatives very often, if at all -- at least not individually? (Consider a pet food manufacturer that sells to retailers, not directly to consumers. Or a convenience sto..
|
Populated with workers who produce either food or clothing
: A country (“Home”) is populated with workers who produce either food (F) or clothing (C).There are 200 workers producing food and 100 producing clothing - these numbers are fixed. What is the autarky trade price (the relative price of food and clothi..
|