Lonas Demand Schedule - Assignment Example

Total Number of Words 750 UNIT 3 C 2.B 3.B 4.A 5.A 6.B 7.D 8.D 9.D 10.A 11.C 12.A 13.C 14.A 15.B 16.B 17.C 18.C 19.A 20.C 21.C 22.B 23.C 24.B 25.B 26.C 27.A 28.B 29.C 30.A 31.A 32.B 33.B 34.C 35.B 36.A 37.D 38.B 39.C 40.D 41.A 42.C 43.B 44.D 45.B 46.B 47.A 48.D 49.C 50.C Part Two 1. a. Lona’s demand schedule and demand curve for apples Quantity Value of Apples ($) 1st Apple 2nd Apple 3rd Apple 4th Apple 2 3 3.50 3.75 b. If price of an apple is $0.75, Lona can buy 5 apples all in all [$3.75 / $0.75]. Therefore, Lona is more likely to receive $0.75 consumer surplus from purchasing some apples. c. If the market price of apples falls to $0.30, the quantity demanded change is more likely to increase. For this reason, Lona’s consumer surplus will also increase. 2. a. After implementing tax on heating oil, deadweight loss will be greater in the first year. This is because demand for heating oil is still the same and that the public consumers have not yet adjusted with the higher price caused by taxes. Five years after, when consumers have adjusted with the higher price they have to pay, more people will try to reduce their monthly consumption of heating oil. Therefore, deadweight loss after five years may be lesser than the first year. b. Since people have not adjusted their daily consumption of heating oil, revenue collected from tax will be greater in the first year. 3. a. Due to alternative drinks, soft drink products are highly elastic. In case taxes were imposed on cola only, the supply and demand curves for the market of cola and all soft drinks will be elastic. Since people may shift from cola to other soft drinks (i.e. Sprite), demand curve for soft drinks that are not cola-based will increase as demand curve for cola will decrease. In case taxes were imposed on all soft drinks, some people will decide to patronize fruit juices, etc. other than soft drinks. Therefore, supply and demand curves of cola and all soft drinks will remain elastic. b. To raise the same $100 million in revenue, a tax on cola would require higher rate because choices on colas is limited. c. Taxes on all soft drinks will create more deadweight loss because people can shift to other alternative drinks. d. Tax on cola is better since it will result to lesser deadweight loss. 4. a. b. 5. a. $6, 84 b. 66 c. 44 d. $384 e. $294 f. $45 g. $80 h. $44 i. $11 Unit Four 1.C 2. D 3. C 4. C 5. B 6. B 7. B 8. A 9. A 10. C 11. B 12. C 13. C 14. B 15. C 16. A 17. C 18. B 19. A 20. A 21.C 22.D 23.A 24.C 25.B 26. B 27.D 28.E 29.C 30. D 31.D 32.D 33. A 34.B 35.D 36.A 37.A 38.B 39.C 40.B 41.B 42.D 43.B 44.C 45. C 46. C 47.C 48.D 49.A 50.B Part Two 1. a. Negative externalities are the industrial wastes that were dumped on the river. Due to water contamination, the livelihood of Robert as a fisherman is negatively affected. b. Regulatory policy that aims to prevent water pollution should be imposed by the government. This strategy can lead to an efficient outcome. c. David and Robert may fail to reach an efficient solution. In the case of David, the process of going through bargaining with Robert could adversely affect his pulp business. Therefore, there is a strong possibility that bargaining between the two will not take place not unless there is a government intervention that will require David to avoid dumping industrial wastes on the river. 2. a. Overfishing is rational for fishers because the more fish they catch means the higher income for them. b. In principle, each person is considered a member of the community. Therefore, the government expects the community members to give their support in taking care of the available common resources. However, each person is more concerned with their self-interest. c. Using the concept of property rights, the local fishermen will not have to compete with foreigners who are invading the local jurisdiction of a country. Therefore, there was a lesser chance of depleting the available fish in the ocean. 3. a. Government support on increased fishing encourages the fishers to overfish. However, in the long-run, such policies could only lead to long-term solution to fishing problem. In the absence of government restrictions, continuous overfishing can only result to the depletion of stocks. As the fish stock replenishes, overfishing cycle will continue. b. Long-term exclusive right to a fishery is similar to having ownership right. Through fisherman ownership, fishermen can be more willing to preserve the future level of fish stock. Otherwise, fishermen will stay focus on overfishing. c. To reduce overfishing, the government can implement policies that limit fishing activities each day, seasonal restrictions, and awarding fishing license to a limited group of fishermen. 4. a. Advocates of anti-poverty programs or any other type of charity work is considered a public good since the issue on poverty is something that cannot be solved by private organizations alone. Government intervention is necessary to eliminate poverty. By taxing the wealthy people, the government can come up with enough funds to support the educational and employment needs of the poor. b. Not all people are willing to stay home to minimize congestion problem. Since people’s incentive to fix traffic problem is low, government intervention is necessary to make a country able to reach the socially optimal level of traffic on the road. c. Due to profit motivation, fishermen aim to catch many salmon and sell it to the public consumers. Pet shop owners have a profit incentive to breed goldfish and sell it to consumers. 5. a. Benefits principle b. Ability-to-pay principle c. Benefits principle Unit Five 1.C 2.A 3. A 4.C 5.B 6.B 7.C 8.D 9.A 10. A 11.D 12.A 13.C 14.C 15.C 16.D 17.B 18.A 19.A 20.C 21.C 22. D 23.A 24.A 25.B 26.A 27.B 28.D 29.B 30.B 31.A 32.C 33.D 34.B 35.C 36.D 37.C 38.B 39.D 40.D 41.B 42.C 43.C 44.D 45. B 46.C 47.B 48.B 49.B 50.C Part Two 2. a. opportunity cost. b. an average total cost c. a fixed cost. d. a variable cost e. the total cost. f. the marginal cost. 3. Units of Total Total Total Marginal Marginal Output Cost ($) Revenue ($) Profit ($) Cost ($) Revenue ($) 0 8 0 0 0 0 1 9 8 -1 9 8 2 10 16 12 20 32 3 11 24 39 33 72 4 13 32 76 52 128 5 19 40 105 95 200 6 27 48 126 162 288 7 37 56 133 259 392 a. At least 7 units of output. b. The graph suggests that the marginal revenue of the company is relatively higher than the marginal cost. Therefore, good profit is expected. c. The firm is a competitive industry. No, it’s not in a long-run equilibrium. 4. a. TC is equal to the sum of revenue and losses. Whether this firm will shut down or not will depend on the position of average variable cost. At output level Q0, if average variable cost is below P0 the firm will remain in the market. At output level Q0, if average variable cost is above P0, the firm will shut down in the short run. b. No. It is not possible to maintain economic profits within a competitive market because of external uncertainties that can affect the business performance. 5. a.. Aggregate supply curve will shift inward (from SRAS1 to SRAS2). Each time the cost of an input increases, the supply of the good shifts inward (decrease in supply) because of the increasing costs to the producers. b. Since the cost increases, profits will decrease in the short-run. In the long run, the number of boat makers will decrease because they are less willing to produce. Unit Six 1.B 2.C 3.B 4.A 5.A 6.A 7.C 8.C 9.C 10.C 11.D 12.D 13.C 14.E 15.C 16.D 17.D 18.B 19.A 20.A 21.B 22.B 23.A 24. C 25.C 26.C 27.B 28.D 29.B 30.A 31.B 32.B 33.C 34.C 35.C 36.A 37.D 38.B 39.D 40.C 41.A 42. B 43.D 44.C 45.A 46. A 47. B 48.B 49.C 50.A Part Two 1. a. A profit-maximizing monopolist will produce Q0 units of output and sell at price P0. However, marginal cost is MC0. This is identical to the deadweight loss of taxation when the tax forces a wedge between market price and marginal cost. b. $25 = [½*(110 - 100)*($10 - $5)]. c. Instead of profit maximization, revenue maximization is one of the main objectives of monopoly. Normally, MR = 0 is where revenue maximizer operates. It means the monopolist reduces deadweight loss by moving closer to socially optimal competitive outcome. 2. a. Area A is the consumer surplus, area B is the producer surplus, area A + B is the total surplus. b. Area C+A is the new consumer surplus, area B is the new producer surplus, and area A+B+C is the new total surplus. Assuming MR is not constant, deadweight loss is area D + E. 3. a. Yes. It will adversely affect the annual sales and revenue of beer companies. b. Beer company profits will fall due to decrease in sales per quantity. 4. a. The profit-maximizing level of Sparkle is at quantity Qm and price PM. b. Sparkle’s profit is 0 since at Qm, price = to average total cost. c. The consumer surplus when purchasing Sparkle toothpaste is areas A+B. The efficient level of output occurs at QC. Area C is deadweight loss. the area above MC and below demand, from QM to QC. d. The company will lose money because average TC will exceed price. Thus, causing firm to shut down. There’s no consumer surplus if this happen. 5. Do firms: Perfect Monopolistic Monopoly competition competition Make differentiated products? ______ ____Y___ ___Y____ Have market power? _______ ___Y_____ ___Y____ Have excess capacity ? _______ ___Y___ ___Y____ Pick Q so that MR=MC? ___Y____ ___Y___ ____Y___ Pick Q so that P=MC? ____Y___ _______ _______ Earn economic profits in the long run? ________ _______ ____Y____ Face a downward-sloping demand curve? ________ ____Y___ ___Y_____ Have MR less than price? ________ ____Y____ ____Y____ Face the entry of other firms? ____Y____ _____Y___ ________ Exit in the long run if profits are less than zero? ____Y___ ___Y____ ____Y____ Read More