Suppose it is estimated that for every $1 spent on fatty fast food that government must increase health expenditure by $0.25 to pay for the medical treatment caused by its consumption through the Medicare System. The Medicare System is funded by Australian taxpayers. a. Draw a diagram to illustrate the market for Fatty Fast Food in Tasmania in 2021, showing the: i. Private MB and MC and Market Equilibrium price (PM) and quantity of (QM). ii. Social MB and MC and Socially Efficient price (PE) and quantity of (QE). iii. Dead Weight Loss. b. Explain why there a Dead Weight Loss? c. If a Pigouvian Tax could be applied to fatty fast food at what rate should it be set? How would this achieve the Socially Efficient outcome? d. If there was no Medicare System would there be any externality that needs correcting?

Explain who were the agents pushing this Fiscal policy forward. Who opposed the policy? What was the incentive

framework of the main agents involved before the fiscal policy was implemented? And what was the incentive

framework implied by the fiscal policy?

Identify groups of people with similar backgrounds or interests and compare the fiscal

policy from the viewpoint of these groups.

1. Explain how and why each of the following factors would influence current aggregate demand in the United States:

(a) an increased fear of recession

(b) an increased fear of inflation

(c) the rapid growth of real income in Canada and Western Europe

(d) a reduction in the real interest rate

(e) a decline in housing prices

(f) a higher price level (be careful)

2. Which of the following would be most likely to shift the
long-run aggregate supply curve (LRAS) to the left?

a. unfavorable weather conditions that reduced the size of this year’s grain harvest

b. an increase in labor productivity as the result of improved computer technology and expansion in the Internet

c. an increase in the cost of security as the result of terrorist activities

3. How would an increase in the economy’s production possibilities influence the LRAS?

4. Suppose consumers and investors suddenly become more pessimistic about the future and therefore decide to reduce their consumption and investment spending. How will a market economy adjust to this increase in pessimism?

5. “If the general level of prices is higher than business
decision makers anticipated when they entered into
long-term contracts for raw materials and other
resources, profit margins will be abnormally low and
the economy will fall into a recession.”
– Is this statement true?

6. Which of the following would be most likely to throw the
U.S. economy into a recession?

(a) a reduction in transaction costs as the result of the growth and development of the Internet

(b) an unanticipated reduction in the world price of oil (will the impact of this factor differ between oil producing and oil consuming states?)

(c) an unanticipated reduction in AD as the result of a sharp decline in consumer confidence

7. During the first half of 2008, the world price of oil soared while stock and housing prices plunged. Within the framework of the AD-AS model, how would these two changes influence the U.S. economy? Explain the expected impact on output & price level.

8. When actual output is less than the economy’s full employment level of output, how will real resource prices and real interest rates adjust?

9. Construct the AD, SRAS, & LRAS curves for an economy experiencing:

(a) full employment equilibrium

(b) an economic boom

(c) a recession

Why is fiscal policy more effective in the Keynesian model when interest rates are at 0? Show this graphically with the money market graph.

Show what happens to output, consumption and investment, wages and unemployment if the Federal Reserve contracts the money supply in the RBC model with nominal rigidities.

Provide a brief explanation of the general ineffectiveness of policy in counteracting business cycles in the RBC model.

This module has focused on different business costs. For this week’s paper, go to your local grocery store and price the ingredients for baking chocolate chip cookies. For simplicity, assume the ingredients for three dozen cookies are: One 16 oz. box of sugar = $0.62 One 12 oz. bag of chocolate chips = $2.89 One 2 lb. bag of flour = $0.99 One dozen eggs = $1.39 A fixed cost of $30 to rent a kitchen with an oven for a day Assume in an hour you can bake two dozen cookies and that the cost of your time is $10 an hour.

Calculate the average total cost, average variable cost, average fixed cost, and marginal cost for baking one dozen, two dozen, three dozen, four dozen, five dozen, six dozen, seven dozen, eight dozen, nine dozen, and ten dozen cookies.

Show your work for the calculations and create a table with just cost numbers. Create the graphs for each of the cost numbers. Graph them on the same graph. Recalculate the costs assuming the cost to rent the kitchen with an oven dropped to $15. Compare the new calculations with the old calculations.

Draw a diagram to show the long run equilibrium condtion of the perfectly competitive firm

1. Suppose there are only two firms serving your market with the high-speed Internet access. Market demand is estimated to be P = 40 – 5(Q₁ + Q₂). Each firm’s marginal cost is $20.
   1. Suppose each firm maximizes its own profit, treating the other’s quantity as constant. Find an expression for firm 1’s optimal output as it depends on firm 2’s. In equilibrium, what common levels of output will each firm supply?

b. Suppose the two firms decide to collude in setting their outputs. What outputs should they set and why?

1. What are the important characteristics of perfectly competitive markets?

2. Give me 5 examples of perfectly competitive markets.

3. Why do you think economist really like to talk about competitive markets?

4. What does the concept of low or no barriers to entry mean? Why is it so important to understand barriers to entry?

5. Give me 5 examples of price takers in perfectly competitive markets.

1) What is the debt limit and why do we have one?

2) Does raising the debt limit allow the government to spend more money?

3) What happens when the Treasury hits the debt ceiling?

4) Why is raising the debt ceiling so controversial?

5) What happens if congress doesn't act?

6) What are the dangers of rising national debt?

7) Has the debt ceiling ever been reduced?

8) Should Congress keep expanding the debt ceiling? Why/why not?