Describe and illustrate the difference between perfect competition and monopolistic competition in the long run. Comment on long run profit, price sensitivities that firms are responding to as well as welfare and efficiency outcomes in both cases.

1. If a country faces a trade deficit,
   1. What fiscal policy would you propose to reduce the trade deficit?
   2. What monetary policy would you propose?

2. What fiscal, monetary, and exchange rate policies would you propose if a country wanted to eliminate a trade surplus so that its citizens would have access to more consumer goods?

3. Explain what is lilkely to value of the dollar if the following economic conditions change. (You can use a supply-demand drawing or reason with words.)

1. The Federal Reserve decides to lower interest rates.
2. A crisis causes foreign holders of finance to buy safe assets.
3. A big economic expansion in Europe leads to a surge of demand for American exports.
4. The United States experiences a big economic expansion and this leads to an increase in the demand for imports from China.

Suppose Voodoo Donuts and Stumptown Coffee are perfect complements, consumed together one donut to one cup of coffee. Suppose the price of a donut is $1 and the price of a cup of coffee is $3. Use both graphs and words to explain income and substitution effects when the price of coffee to rise to $4.

Suppose Oreos and Hydrox are perfect substitutes, one for one. If Oreos currently sell for 50 cents and Hydrox sell for 75 cents, use both graphs and words to explain income and substitution effects that occur when the price of Oreos to rise to $1.

In a restaurant that allows smoking, your consumption of cigarettes may have a negative effect on my enjoyment of a restaurant meal. Yet you do not in any way pay for this negative effect on me.

a. (5 points) From this information, decide on the type of externality your consumption creates in the market for cigarettes. Explain in detail, using words and an appropriate graph, the nature of the externality.

b. (5 points) In your graph denote the magnitude of the excess burden (deadweight loss) arising from this externality.

c. (5 points) Now assuming that this externality is the pre-existing distortion in the market, there is an additional tax imposed on the buyers of cigarettes. What do you expect would happen to the excess burden (deadweight loss) of this tax? Describe in words how the graph would alter with the tax and draw a new graph to show the effect on the excess burden (deadweight loss).

d. (5 points) Discuss if the theory of second best holds in this case.

We have seen in class that the labor force participation of women has increased considerably in the last 50 years in many countries of the world. Unfortunately, during the same time, in some countries, gender wage gap has increased. Newspapers in these countries have reported this increase in the gender wage gap as evidence that there have been an increase in the number of discriminating firms or in how discriminating they are. Using the model of discrimination learned in class, provide an alternative explanation of what could have increased the gender wage gap. Use a graph.

Drug law enforcers can concentrate their efforts on reducing supply or demand,
removing suppliers or removing demanders.
a. Assuming that your goal is to raise the price of drugs to a prohibitive level,
should you pursue suppliers or users? What does your answer assume about
elasticities of demand and supply?
b. If instead you want simply to reduce consumption and are uninterested in what
happens to price, under what assumptions about elasticities should you target
users rather than sellers?

Please justify with relevant economic concepts.

Developing a new product has taken longer and required more work than was
expected at the time the decision to develop was first made. Should the firm raise
the price of the product above what it originally planned to sell it for because the
costs are higher than before?

Please justify with relevant economics concepts.

Airlines routinely overbook flights, selling more tickets than seats available. If too
many ticketed passengers show up, they offer payments to volunteers who are
willing to give up their seats. These take such forms as cash vouchers for future
flights and upgrades to first class on the next flight out.
a. Why is this situation more efficient than a simple rule that prohibits airlines
from overbooking? (Be sure to say precisely what you mean by efficiency.)
b. Why do you (probably) not object to the airline practice of bribing passengers
off the plane, but you (probably) would object if you learned that the airline had
bribed a local politician to obtain airport gate space that would otherwise have
been used by a competitor?

Please justify with relevant economic concepts.

Consider the following statement: “Devoting a larger share of national output to investment will imply a higher consumption per worker and a higher living standard.” Do you agree with this claim? Explain, using the Solow model.

Given the current state of things with the coronavirus, we are seeing real damage being done to the economy. Policymakers are struggling to help the economy. Suppose you were in charge of either monetary policy (i.e., changes in the money supply) or fiscal policy (i.e., changes in government spending and taxing), explain what you would do and why you believe it would help.

Suppose an economy has been having very high inflation. The central bank has decided to decrease the money supply in hopes of decreasing GDP (the thinking is that by decreasing GDP, it will lead to lower inflation – no need to make that connection, just focus on the goal of decreasing GDP). Using the complete Keynesian model, explain in as much detail as possible what will likely happen to the economy (including GDP, the interest rate, investment spending, any multiplier effects). Finally, under what conditions would GDP be more effected (e.g., high or low mpc, steep or flat money demand, steep or flat investment schedule)?

Suppose a government has been running large government deficits. In order to address these deficits, the government has decided to decrease its spending (G) and raise taxes (T). Using the complete Keynesian model, explain in as much detail as possible what will likely happen to the economy (including GDP, the interest rate, investment spending, any multiplier effects). Finally, under what conditions would GDP be less effected (e.g., high or low mpc, steep or flat money demand, steep or flat investment schedule)?

The economy is in a recession. A congresswoman suggests increasing spending to stimulate aggregate demand but also at the same time raising taxes to pay for the increased spending. Her suggestion to combine higher government expenditures with higher taxes is: a. The worst possible combination of tax and expenditure changes. b. The best possible combination of tax and expenditure changes. c. A mediocre and contradictory combination of tax and expenditure changes. d. None of the above. After selecting your responses to both questions explain your answers in detail, use economic terms (aggregate-spending, production, income, employment...What are the economic consequences, how would they influence the four major sectors (C+I+G+Xn) and Real GDP.