Microeconomics (2nd Edition) (Pearson Series in Economics)
Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Chapter 6, Problem 8P
To determine

Reason for a large increase in prices under the strict zoning laws and a smaller increase in prices under the lax zoning laws, when the demand for houses increases.

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Example 2: In fall of 2011, the National Christmas Tree Association decided to impose a fee/tax of $0.15 per tree sold.² They claimed the tax revenue raised would fund a new marketing campaign for Christmas tree growers in response to growing plastic tree imports. The proposal quickly drew controversy: some argued that the fee/tax would be passed along in higher prices to consumers, but the National Christmas Tree Association says no. How does the answer to this question depend on the assumption about the price elasticity of demand? a. Consider two graphs of the market for Christmas trees. The supply curve in each market is assumed to be the same. In the left graph, assume the price elasticity of demand is relatively inelastic and in the right graph, assume the price elasticity of demand is relatively elastic. Add labels on your diagram to identify the equilibrium price and quantity of trees before the tax. b. Now, suppose retailers are assessed a tax of amount for each tree sold.…
One of the members of the Senate Foreign Relations Committee has studied your analysis of Chinese privatization but is worried that the free-market price might be too low to enable producers to earn a fair rate of return on their investment. He asks you to explain what would happen if the Chinese government privatized the market but agreed to purchase (and discard) unsold units of the good at a floor price of $3.50. What do you tell the senator? Assume that the market demand and supply curves (in U.S. dollar equivalent prices) are still given by Qd = 10 − 2P and Qs = 2 + 2P
Please read the article attached below titled “Notable & Quotable: Gouging” (March 31, 2020) and answer the given question. Note: The phrase “price-gouging” refers to a situation where some sellers are charging prices (e.g., for health equipment and supplies) that are well above the market price charged by other sellers. If firms are reluctant to raise prices and/or earn an economic profit in response to the coronavirus outbreak, explain why the usual mechanism for achieving “allocative” (or social) economic efficiency in a perfectly competitive industry breaks down. What does Professor Romer recommend to improve “allocative” efficiency during this extraordinary time of a pandemic? In your answer, be sure to explain what economists mean by “allocative” efficiency.
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