ECON 2302
HOMEWORK PROBLEMS
FOR PART 7
The purpose of doing these problems is to increase your understanding
of the material.
It will help you on quizzes and exams. You do not have to turn in this
work. I will not go
over these problems specifically in class. Read the assigned chapters and
come to class.
Check on the completed work which is on reserve in the SCC library.
After doing that,
if you still have difficulties, come to see me during my office hours.
----
Dr. Cohick
1. A group of five persons is thinking of buying good X for $500 and splitting the cost equally. The group will use majority rule to decide whether good X will be purchased or not. In the table, you will find the dollar value of the benefit and the cost to each individual. Answer the questions that follow.
|
Person |
$ Value of the benefit to the individual |
$ Value of the cost to the individual |
|
A |
$143 |
$100 |
|
B |
$120 |
$100 |
|
C |
$110 |
$100 |
|
D |
$ 10 |
$100 |
|
E |
$ 5 |
$100 |
a. Identify the individuals who will be in favor of buying good X: ________________
b. Identify the individuals who will be against buying good X: ___________________
c. Will the group buy good X? ____________________________________________
d. If Individual E pulls out of the group, how do the numbers in the table above change? ______________________________________________________________________
______________________________________________________________________
e. With only Individuals A, B, C, and D remaining in the group, will the group buy good X? ____________ Why or why not?_________________________________________
2. A group of 70 business persons who produce the same
product form a political action committee to lobby Congress to provide them a
subsidy of $1,000,000 each every year. If approved, the funds will come out of
tax dollars. There are about 70 million taxpaying families in the
a. What is the maximum amount each of the business persons might be willing to contribute to get the subsidy? _____________________________________________
b. What is the maximum amount each taxpaying family might be willing to contribute to stop the subsidy? _________________________________________________________
3. In the space to the right below, draw a PPF for two goods: health care (on the y axis) and all other goods (on the x axis). Identify our current market driven situation as point M on the PPF about one-third up from the x axis.
a. Now assume that society wants more health care
than the market is providing. Identify this as point S
on the PPF you drew. What is the trade off if we
moved from point M to point S? ________________
__________________________________________
__________________________________________
b. As agent of society, what could government do to
cause the move from point M to point S? _________
__________________________________________
__________________________________________
__________________________________________
c. Is it possible that government involvement might
fail to attain the desired point? _________________
Why or why not? ____________________________
___________________________________________
___________________________________________
5. In the space to the right below, draw a market model for a good. Assume this good creates negative externalities. Add a new supply curve that represents all of society’s costs including the negative externality.
a. Using the intersection between the market demand curve
and society’s supply curve, tell what happens to the good’s
price. _______________________ Also, tell what happens
to the good’s quantity. ____________________________.
b. If left solely to the market, does the market underproduce
or overproduce this good? _________________________
c. Is the market price higher or lower than what society
would like to have it be? ___________________________
6. In the space to the right below, draw a market model for a good. Assume this good creates positive externalities. Add a new demand curve that represents all of society’s benefits including the positive externality.
a. Using the intersection between society’s demand curve
and the market supply curve, tell what happens to the good’s
price. _______________________ Also, tell what happens
to the good’s quantity. ____________________________.
b. If left solely to the market, does the market underproduce
or overproduce this good? _________________________
c. Is the market price higher or lower than what society
would like to have it be? ____________________________