Reference no: EM131885098

Assignment: Principles of Microeconomics

Instructions:

Answer all the following questions. Each question carries the same points.
Write clearly or type and print your answers. Use pen for text and pen or pencil for graphs.

Question 1

Cow milk and soy milk are substitute goods. Draw the graphs of the markets for cow and soy milk. Now, suppose production of cow milk becomes more costly to produce. What happens in the two markets? Show in the graphs and explain. (Denote the initial curves and equilibria by 1 and the new ones by 2.)

Question 2

After the February 14, 2018, mass shooting at Marjory Stoneman Douglas High School in Parkland, Florida, which resulted in 17 people killed and 15 more hospitalized, making it one of the world's deadliest school massacres, many have demanded a prohibition of assault rifles. (a) Consider the market for assault rifles. Graph the market and show the equilibrium assuming there is no restriction on the quantity traded (free-trade regime). Now assume government imposes a severe restriction on the quantity of rifles traded (restriction regime). Show the new equilibrium in the market. (b) What happens to consumer surplus, producer surplus and total market surplus (CS, PS, TMS) after the imposition of the restriction? What is the quantity of guns traded that maximizes the total market surplus? (c) Does the free market attain an optimal allocation? What do you think the market mechanism and the calculation of social welfare on the basis of the aforementioned metrics (CS, PS, TMS) is missing?

Question 3

Suppose there is a sudden arrival of the news that there will be an excess supply of apartments to lease in Miami next year. Draw the graph of the market for apartment in Miami this year and show the equilibrium outcomes before and after the arrival of the rumor. Explain. (Label the initial curves and equilibrium 1 and the new curves and equilibrium with 2).

Question 4

Most studies suggest that the elasticity of demand for illegal drugs is approximately around 0.5. The US government spends over $50 billion a year arresting over 1.5 million people and deterring the supply of drugs with police, prisons, and border patrols. This is in turn increases the cost of smuggling and dealing drugs. Imagine two possible regimes: a prohibition regime and a non-prohibition regime. (a) Draw a graph of the illegal-drugs market under the two regimes. (b) Show and compare the drug-seller revenues under the two regimes. Explain.

Question 5

Production Point	Capital goods		Consumer goods
A	1,500	and	0
B	1,000	and	3,250
C	500	and	3,500
D	0	and	4,000

The table above gives the production possibilities frontier for a nation that produces capital goods and consumer goods. (a) Draw the graph of the production possibilities frontier (PPF). Is the joint production of 1,000 units of capital goods and 1,000 units of consumer goods feasible? Is the joint production of 1,250 units of capital goods and 2,500 units of consumer goods feasible? (b) Calculate and draw the curves representing the marginal cost (MC) of production for each of the two goods. What can explain this shape of the curves? (d) How would you expect the graph of PPF to change if technological development made production of capital goods (but not of consumer goods) cheaper?

Question 6

Wage rate (dollars per hour)	Quantity demanded (hours per month)	Quantity supplied (hours per month)
3	800	400
4	700	500
5	600	600
6	500	700
7	400	800

The table above describes the labor market in a country. Workers demand labor (employment hours) an firms supply labor (employment hours). (a) Draw the demand-for-labor and supply-of-labor curves. What are the equilibrium wage and the level of employment? (b) Suppose the minimum wage is set at $4.50 per hour. How many hours are employed? How many hours of labor are unemployed? (c) If the minimum wage is raised to $6 per hour, what are employment and unemployment?

Question 7

Rent (dollars per month)	Quantity of apartments supplied (per month)	Quantity of apartments demanded (per month)
200	20	100
300	40	80
400	60	60
500	80	40
600	100	20

The above table gives the demand schedule and the supply schedule for housing in some town. (a) Draw the graph of the market for apartments. What is the equilibrium of the market? (b) If a rent ceiling of $300 is imposed in the housing market, what will happen in the market for housing? (c) What might be the reasons for imposing the rent ceiling?

Question 8

Society	Red's Income	Blue's Income	Green's Income	Total Income
A	200	200	200	600
B	480	100	20	600
C	1200	1200	198	2598
D	260	260	220	740
E	2192	204	202	2598

The table above gives the distribution of income among three individuals (Red, Blue, and Green) in five different societies. (a) Which society would be favored by John Rawls? (b) Which society would be favored by the Utilitarians? (c) What would Robert Nozick probably say about moving from society E to society C? (d) What would Vilfredo Pareto say about moving from society B to society D? Explain your answers.

Question 9

Explain and critically evaluate the fundamental principle of individual rationality and optimizing behavior based on your understanding and your readings.

Question 10

Explain and juxtapose the theories of economic fairness of the Utilitarian philosophers, John Rawls, and Robert Nozick.