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Think about the market for vaccines, which we described in class as having a positive consumption externality.
(a) Explain carefully why this is so, especially who else benefits and how.
(b) Define carefully the general meaning of marginal external benefit. Explain how you think the marginal external benefit (MEB) of a vaccine will vary with the quantity of vaccine consumed and why. Draw the curve for the MEB that you have described.
(c) Given the MEB you have described and assuming an upward sloping MPC curve and a downward sloping MPB curve, illustrate the first free market and socially optimal quantities in a supply and demand diagram. Explain in words why these quantities occur and how they compare.
(d) Describe in words and illustrate in the graph a tax or subsidy policy that would result in the socially optimal quantity being produced. Explain in accessible words why the policy would result in the socially optimal quantity of vaccine being consumed.
(e) Define in general the term "internalize the externality" and explain its application in this case. Discuss a policy other than a tax or subidy that could cause individuals to internalize the externality. Explain briefly.
Political business cycle: Do economic events affect presidential elections? To test this so-called political business cycle theory, Gary Smith 20 obtained the following regression results based on the U.S Presidential elections for the four yearl..
This problem uses Okun's law to study how the unemployment and inflation rates change when there are demand shocks. Assume that the relationship between the output ratio and the unemployment rate, U is given by the equation U = 6.0 - 0.5 (output ..
Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fresh fish. The accompanying table shows the maximum annual output combinations of potatoes and fish that can be produced.
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Testifying at a price fixing trial involving Cargill Corp. and the market for chicken growth hormone, (in which the Cargill is one of only three firms worldwide), an executive for Perdue said
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Find out the optimal weekly output and price of this firm. Find out the weekly profit from the production and sale of this product.
In national income accounting identity showing the equality between national saving and investment, what is the representation of private saving and what is the representation of public saving?
Consider a product with a supply function Q 1 = β 0 + β 1 + u 1, a demand function Q d i =y 0 +u i d . Show that P i and u s d are correlated.
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For the product shown, assume that the minimum point of each firm's average variable cost curve is at $2. Construct a demand and supply diagram for the product and indicate the equilibrium price and quantity.
Describe the US household is harmful to the economy with the use of AS-AD diagrams.
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