Questions 5, 6, and 7 consider the perfectly competitive market for Honey. Honey is produced by beekeepers, each of which have traditional U-shaped average cost curves. There are many firms in the honey industry, each producing a homogeneous product: honey. Market demand for honey can be characterized as a downward sloping linear function.

Question 5: For this question, ignore any externalities that might be associated with the production of honey. Graphically indicate the demand (D0) and Supply (S0) and the equilibrium in the market for honey. Show the equilibrium price and quantity, Q0 and P0. Indicate on your graph the areas of consumer surplus and producer surplus. What is the output level the Benevolent Dictator would like to see in this market? Why?

Question 6:

Now suppose that scientists have discovered that the production of honey has a very significant positive externality. The main input into honey production, honey bees, are most effective when there are orchards nearby. The bees gather nectar from the orchards and simultaneously pollinate the orchard. This pollination is very valuable to the orchard.

However, honey firms (beekeepers) are not compensated for this positive impact on orchards. This positive externality means that the true marginal social value of producing honey is different than the marginal private value of the consumption of honey. Indeed, the Marginal Social Value for the industry would be the sum of the marginal private value (the demand curve) plus the positive impact each unit of honey production has on orchards. That is, in the eyes of the benevolent dictator, the production of honey has Marginal Social Value per unit higher than the marginal private value (the demand curve).

• Construct another graph. Show the original demand and supply (labeled correctly as D₀and S₀) and equilibrium price (P₀) and quantity (Q₀).
• Now add another curve that reflects the Marginal Social Value given the existence of the positive externality, and label it appropriately.
• What, if anything, happens to price and quantity of honey established in the marketplace, given the presence of this positive externality?
• What is the output Q_SO6the Benevolent Dictator would choose (where SO6 stands for Socially Optimal output here in question 6, which may or may not be different than the socially optimal output you found in question 5)?
• Indicate graphically and explain in a narrative the area of deadweight loss (DWL), if any, given the existence of this positive externality. What does deadweight loss mean in this context?

Nick and Tim are considering contributing toward the creation of a water fountain. Each can choose whether to contribute $300 to the water fountain or to keep that $300 for a pool table.

Since a water fountain is a public good, both Nick and Tim will benefit from any contributions made by the other person. Specifically, every dollar that either one of them contributes will bring each of them $0.70 of benefit. For example, if both Nick and Tim choose to contribute, then a total of $600 would be contributed to the water fountain. So, Nick and Tim would each receive $420 of benefit from the water fountain, and their combined benefit would be $840. This is shown in the upper left cell of the first table.

Since a pool table is a private good, if Nick chooses to spend $300 on a pool table, Nick would get $300 of benefit from the pool table and Tim wouldn't receive any benefit from Nick's choice. If Nick still spends $300 on a pool table and Tim chooses to contribute $300 to the water fountain, Nick would still receive the $210 of benefit from Tim's generosity. In other words, if Nick decides to keep the $300 for a pool table and Tim decides to contribute the $300 to the public project, then Nick would receive a total benefit of $300+$210=$510$300+$210=$510, Tim would receive a total benefit of $210, and their combined benefit would be $720. This is shown in the lower left cell of the first table.

Complete the following table, which shows the combined benefits of Nick and Tim as previously described.

Of the four cells of the table, which gives the greatest combined benefits to Nick and Tim?

When both Nick and Tim contribute to the water fountain

When neither Nick nor Tim contributes to the water fountain

When Nick contributes to the water fountain and Tim doesn't, or vice versa

Now, consider the incentive facing Nick individually. The following table looks similar to the previous one, but this time, it is partially completed with the individual benefit data for Nick. As shown previously, if both Nick and Tim contribute to a public good, Nick receives a benefit of $420. On the other hand, if Tim contributes to the water fountain and Nick does not, Nick receives a benefit of $510.

Complete the right-hand column of the following table, which shows the individual benefits of Nick.

Hint: You are not required to consider the benefit of Tim.

If Tim decides to contribute to the water fountain, Nick would maximize his benefit by choosing   to the water fountain. On the other hand, if Tim decides not to contribute to the water fountain, Nick would maximize his benefit by choosing   to the water fountain.

These results illustrate   .

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list and explain the three typical procedures for transferring a juvenile to criminal court

Suppose that the cost function of a firm is c(y) = 3y²+ 75.

(a) What are the fixed costs and variable costs?

(b) Determine the minimum average cost. Derive and sketch in a diagram the average variable cost (AVC), marginal cost (MC), and average cost (AC).

(c) Derive the supply curve.

(d) When the market price is 45, what are the quantity supplied and profit / loans?

(e) When the market price s 15, what ane the quantity supplied and profit / loss?

A car rental company usually requires customers to buy insurance to cover their rented cars against damage and the insurance premium is much higher than the normal car insurance for similar coverage. Discuss why this is the case using the context of asymmetric information

Mr. Wong buys gold from gold mines and resells it in the retail market in Country A. Before the gold is sold in the retail market, Mr. Wong needs to store the gold in a warehouse and the storage cost is $10 per kg of gold per day. For examples, if Mr. Wong buys 1kg of gold on 22 April 2020 and sells it on the same day, Mr. Wong has to pay a storage cost of $10. If Mr. Wong buys 1kg of gold on 22 April 2020 and sells it on the next day, Mr. Wong has to pay a storage cost of $10 x 2 = $20. There is no fixed cost in Mr. Wong’s gold business.

Mr. Wong is the sole retailer of gold in Country A and he would like to maximize the profit of his business.

The market demand for gold is Q^d = 3000-75P and

The corresponding marginal revenue is MR = 40 – 2Q/75,

where Q^d is the quantity demanded for gold (kg/day) and P is the price of gold per kg.

For instance, when P = 20, Q^d = 3000-75(20) = 1500 and MR = 40-2(1500)/75 = 0.

(i) Suppose that Mr. Wong buys gold at a price of $10 per kg. What should be the price of gold set by Mr. Wong in the retail market and what is the quantity of gold sold in the retail market? What is the profit of Mr. Wong’s business?      

(ii) Suppose that the government of Country A requires Mr. Wong to pay for a licensing fee for operating his gold business. After paying for a licensing fee of $2,000 per day, Mr. Wong can sell whatever amount of gold in the retail market in Country A. Briefly discuss how this licensing fee may affect your answers in (i).

(iii) Now, Mr. Wong does not need to pay any licensing fee. Yet, because of a logistical problem, gold purchased today can only be sold on the next day. Briefly discuss how this logistical problem will affect your answers in (i).   

(iv) Now, Mr. Wong does not need to pay any license fee and there is no logistical problem. On 22 April 2020, after Mr. Wong purchased 750kg of gold at a price of $10/kg, the government of Country A announced that the people of Country A cannot buy gold anymore. On the same day, a foreign businessman contacted Mr. Wong suggesting to buy 750kg of gold from him at a price of -$5 (minus $5 per kg). This is the only offer to Mr. Wong on that day. If you were Mr. Wong, will you accept this offer and sell your gold at a negative price?  

(v) “A futures contract for U.S. crude (oil) prices dropped more than 100% and turned negative for the first time in history on Monday, showing just how much demand has collapsed due to the coronavirus pandemic (CNBC April 19, 2020)”. With reference to your answer in (iv), briefly explain why crude oil price could be negative.

Do you agree that alert individuals who purchase valuable domain names should be able to sell them to the highest bidder? If so, in all circumstances or only in certain circumstances?

In 2003, Johnson & Johnson (J&J) introduced the first drug-eluting stent (DES), a medical device inserted into blocked arteries (in a process called coronary angioplasty) to restore blood flow. The drug-eluting stent made previous stents and other methods of restoring blood flow obsolete, as it solved the problem of secondary blood clots and blockages that plagued previous methods. Suppose the demand for DESs is Q = 9 – (P/2) where Q is the number of DESs demanded per year (in thousands) and P is the price of a DES in thousands of dollars.

(a) Suppose it cost J&J $6 thousand to produce each DES. If J&J were the only producer of DESs (e.g., because entry is prevented by J&J’s patents), what price should J&J charge for its DES to maximize profit? How many DESs would be sold at that price? (Make sure your answers are in the correct units.)

(b) In 2004, Boston Scientific figured out a way to engineer around J&J’s DES patents and introduced its own DES. However, Boston Scientific’s technology was more costly than J&J’s. It cost Boston Scientific $10 thousand to produce each DES. If physicians and patients consider the DESs of J&J and Boston Scientific identical and J&J and Boston Scientific compete by simultaneously choosing how much to produce (where the combined DES production determines the price), how many DESs will J&J produce in equilibrium? How many DESs will Boston Scientific produce? What is the equilibrium price in this case? (Again, make sure your answers are in the correct units.)

Macroeconomics:

Explain the modern DSGE approach to studying economic fluctuations.

Describe the political economy of the socialist countries after independence, and then in the socialist era. Explain for each period who were the ruling elites and their economic strategies.

2) Let us say that the protectionism of the coal industry is in the form of a tariff. Talk on the benefits and costs of a tariff. Do the benefits exceed the costs or vise versa? Ascertain you include the terms of trade. Also, what is an optimal tariff?

The authors claim that national data are unlikely to provide evidence for or against a Phillips Curve. Carefully explain why this is (in your own words, of course).

Effect of lower interest rate on economy

5. Fiscal policy, the money market, and aggregate demand Consider a hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the remaining $0.50. The following graph shows the economy's initial aggregate demand curve ( AD1 ). Suppose the government increases its purchases by $2.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve ( AD2 ) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve ( AD2 ) is parallel to AD1 . You can see the slope of AD1 by selecting it on the following graph. AD 2 AD 3 100 102 104 106 108 110 112 114 116 116 114 112 110 108 106 104 102 100 PRICE LEVEL OUTPUT (Billions of dollars) AD 1 The following graph shows the money market in equilibrium at an interest rate of 3% and a quantity of money equal to $15 billion. Show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves on the following graph. Money Demand Money Supply 0 5 10 15 20 25 30 6 5 4 3 2 1 0 INTEREST RATE MONEY (Billions of dollars) Money Demand Money Supply Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $0.5 billion. The change in the interest rate (according to the change you made to the money market in the previous scenario) therefore causes the level of investment spending to by . After the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded to by at each price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is known as the effect. Use the purple line (diamond symbol) on the graph at the beginning of this problem to show the aggregate demand curve ( AD3 ) after accounting for the impact of the increase in government purchases on the interest rate and the level of investment spending. Hint: Be sure your final aggregate demand curve ( AD3 ) is parallel to AD1 and AD2 . You can see the slopes of AD1 and AD2 by selecting them on the graph.

How would each of the following affect the AD, the short run AS and the long run AS curves? Make sure to state why AD, short run AS and long run AS is effected or why it is not

1. An increase in money supply.
2. A slow down in China’s economic growth due to the sub-prime crisis in the US.
3. An increase in private and public capital investment.
4. A cut in income tax.