1. Some people have suggested that forced population control is an efficient means of reducing the Tragedy of the Commons associated with our clean air and water resources. Provide an argument that would support this theory, and also an argument that would oppose this theory. Then, provide another possible solution that would rely on market mechanisms.
2. Describe a government created monopoly. Why might one be created? Give an example.
3. Describe the difference between marginal cost an average total cost. Why are both these costs important to a profit- maximizing firm?
PART B
1. Tina hires jet to do odd jobs around her home and agrees to pay him five dollars per hour. Tina further agrees to guarantee Jeff at least 40 hours of work per week, and to pay him 1.5 times his base pay for any hours worked beyond 40. It just works 45 hours this week, are his wages a fixed cost or a variable cost to Tina? Explain.
2. List the character is the stakes of a perfectly competitive market.
3. Imagine that you’re on vacation in Russia, when suddenly you’re arrested and accused of spying for the United States. (You’re innocent, of course.) Your captors and form you that if you confess, you’ll receive a prison sentence of two years, while your co-conspirator (whom you’ve never heard of) will receive a prison sentence of 20 years. If you both confess, you’ll each receive a prison sentence of five years. You’re also told that your co-conspirator is being offered the same option. If you both maintain your innocence, however, there’s not enough evidence to convict either of you. Applying economic theories to the problem, what should you choose to do, and why?
4. The hotel owner, having heard that new hotel plans to open in his area, says, “We have too many hotels in this town already. Statistics show that vacancy rates average 20% on any given night”. Assuming this is correct, evaluate his negative assessment of the situation in terms of business- stealing and product- variety externalities.
5. Explain the theory that education acts as a signaling device. How does this contrast to the theory of education as an investment in human capital?
6. Explain the difference between inferior goods in normal goods. As a developing economy experiences increase in income (measured by GDP), what do you predict will happen to the demand for inferior goods?
7. Indicate whether each of the following is a private good, a common resource, a natural monopoly, or a public good.
A. a firework display B. a movie viewed at a large theater C. video rental
8. The consumption of alcohol is often cited as an example of a negative externality. Explain his situation which alcohol would be considered a negative externality.
9. Describe the purpose of antitrust laws. What do they accomplish?
10. Describe way consumer who chooses a consumption bundle in which the relative price exceeds the marginal rate of substitution can’t be at an optimum.
