Essay Questions MACRO

International Olympic Committee 2022 Tokyo Olympics prompt

a. The main problem in economic terms is that there may not be enough funds to meet all of the different requests of the various federations. The tennis federation seems to be the most justified in their request, as larger courts are necessary for the sport to be played properly. b. The tennis federation is right in that if the Olympic Villa is reduced in size, then the freed up funds can be allocated to build a larger tennis court. However, it is likely that the other federations will not agree to this as it would mean that their requests would not be met in full.

When people decide to buy cars, they have to decide between fuel economy and other features. It is argued that there is a "public good" issue involved in this decision. Why might that be? How the existence of public-good characteristics affects the price of the car? Include in your answer a good definition of a public good and free riders. Be complete and use the language of economics.

A public good is a good that is non-excludable and non-rivalrous, meaning that it is difficult to exclude anyone from enjoying the benefits of the good and one person's consumption of the good does not reduce the amount available to others. In the case of cars, fuel economy is a characteristic that benefits not only the individual consumer but also the society as a whole. The more fuel-efficient cars on the road, the less pollution and environmental damage caused by gasoline consumption. This makes fuel economy a public good, as the benefits of the fuel economy extend beyond the individual consumer to the society as a whole. However, since individuals may not consider the societal benefits of fuel economy when making their purchasing decision, they may underinvest in this characteristic. This is because of the existence of free riders, individuals who enjoy the benefits of a good without paying for it. In this case, some consumers may choose to prioritize other features of the car over fuel economy, leading to an underinvestment in fuel economy. The existence of public-good characteristics can affect the price of the car by creating a divergence between the private cost and social cost of the car. The private cost of the car includes the cost of production and the private benefits enjoyed by the individual consumer. However, the social cost includes not only the private cost but also the cost of the negative externalities created by gasoline consumption, such as pollution and environmental damage. Since the private cost of the car does not account for these negative externalities, the price of the car is too low relative to the social cost. This creates a market failure where too many cars are sold, leading to excessive pollution and environmental damage.

Consumer Survey Inc

DON"t USE< CHAT GTP MAY BE WRONG HERE The total quantity demanded is 610 hours of public light service. To find the optimal level of public light service, we need to compare this to the marginal cost. At 610 hours, the marginal cost is $80, which is greater than the marginal benefit of $75 (the price per hour paid by the highest income group). Therefore, the optimal level of public light service is 5 hours per day. The optimal level of public light service is where the demand curve intersects with the marginal cost curve, which occurs at 5 hours per day. b. It is not necessary for the city to charge a price per resident, since the marginal benefit of public light service is already captured through the price per hour paid by each income group. However, the city may choose to charge a flat fee per resident to cover the fixed costs of providing public light service, such as the cost of maintaining the infrastructure. Whether or not to charge a flat fee per resident depends on the specific circumstances of the city and its budget constraints.

a) In a market economy, will units of a good be produced and purchased if consumers value them more than their cost of production? Explain. If the production cost per unit of a good exceeds the value derived by consumers, will the good continue to be produced and consumed? Why or why not?....

In a market economy, units of a good will generally be produced and purchased if consumers value them more than their cost of production. This is because producers will only continue to produce a good if they can sell it for a price that exceeds the cost of production. If consumers are willing to pay more than the cost of production, then producers will be able to earn a profit by selling the good. However, if the production cost per unit of a good exceeds the value derived by consumers, it is unlikely that the good will continue to be produced and consumed in the long run. This is because producers will not be able to sell the good for a price that exceeds the cost of production, which means they will not be able to earn a profit. In this situation, producers will likely reduce or cease production of the good, as it is not economically viable to continue producing it. If the good is a luxury good, consumers may still purchase it even if the cost of production exceeds the value they derive from it. However, this will be limited to a small group of consumers who are willing to pay a premium for the good based on its perceived status or other non-economic factors. In general, however, a good that is produced at a cost that exceeds its value to consumers will not be produced in a competitive market economy.

University Official argues tuition is verticle

It is unlikely that the university official's argument that the demand for admission is completely vertical is accurate. This is because the increase in tuition rates over the past 15 years has not led to a decrease in the number or quantity of students applying. To analyze this situation graphically, we can use a standard supply and demand diagram. The demand for admission to the university is represented by the downward-sloping demand curve, which shows the quantity of admission that students are willing and able to purchase at different tuition rates. The supply of admission is represented by the upward-sloping supply curve, which shows the quantity of admission that the university is willing and able to provide at different tuition rates. If the demand for admission were completely vertical, this would mean that the quantity of admission demanded would not change in response to changes in tuition rates. However, if the demand curve were downward sloping, this would mean that the quantity of admission demanded would decrease as tuition rates increase. Therefore, if the university has doubled tuition in real terms over the past 15 years and has not seen a decrease in the number or quantity of students applying, this would suggest that the demand curve is not completely vertical but rather downward sloping. In other words, the increase in tuition has not deterred students from applying to the university, but it may have resulted in some students being priced out of attending or choosing alternative options. In conclusion, while the evidence provided by the university official suggests that the demand for admission may not be highly responsive to changes in tuition rates, it is unlikely that the demand curve is completely vertical.

9/11

It would not make economic sense to devote enough resources to completely prevent any future attack on airlines. The reason is that resources are scarce, and society faces unlimited wants. Devoting all resources to complete security would come at the cost of other goods and services that society desires. Furthermore, there is no such thing as complete security; there is always some risk of a terrorist attack. Therefore, it is not economically efficient to invest unlimited resources in airport security, as the cost of reducing the risk of a terrorist attack to zero would be prohibitive. Economists suggest that the best approach is to weigh the costs and benefits of additional security measures and aim for a level of security that minimizes the expected cost of terrorist attacks. It is a tradeoff between security and other goods and services that society values. By doing so, society can achieve the optimal level of security at the lowest cost.

Cash 4 Clunkers

The "Cash for Clunkers" program was a government stimulus program aimed at boosting the automobile industry, which was struggling during the 2008-2009 recession. The program offered consumers a financial incentive to trade in their old, fuel-inefficient cars for newer, more efficient ones. In terms of principles of macroeconomics, this program can be seen as an attempt to stimulate aggregate demand in the short run, by encouraging consumption and investment in the auto industry. The hope was that this would lead to increased sales, output, and employment in the industry, ultimately leading to an improvement in living standards for Americans. Did this program achieve its goals? It's difficult to say definitively, as there are both positive and negative effects to consider. On the one hand, the program did increase new car sales in the short run, as many consumers took advantage of the financial incentive to purchase a new car. This increase in demand likely led to increased production and employment in the auto industry. However, there are also some negative effects to consider. For example, the program may have incentivized consumers to purchase new cars that they otherwise would not have, which could lead to a decrease in demand for cars in future years. Additionally, the program may have increased the cost of used cars, as many older cars were taken off the market and destroyed, which could negatively impact low-income consumers who cannot afford to purchase new cars. Overall, it's difficult to say whether the program improved the living standards of Americans, as there are both positive and negative effects to consider. As for the question of whether Americans would be better off if an outbreak of crime destroyed 700,000 automobiles during the next few months, the answer is no. Destruction of automobiles due to crime would not provide any economic benefits or stimulus, and would only serve to decrease overall wealth and well-being. In contrast, the Cash for Clunkers program was a government intervention aimed at stimulating the economy, and while there are debates about its effectiveness, it was a well-intentioned effort to improve the economy and living standards.

Jacksonville Apples

The phenomenon of not finding mature apples can be attributed to the opportunity cost of choosing to plant apple trees instead of other options (apple trees may have been an aesthetically pleasing option, but came at the opportunity cost of the benefits of planting trees better suited to the local climate and soil conditions), as well as the misallocation of resources towards maintaining the trees (maintaining the trees takes time, money ,and effort, so it's possible the city didn't allocate enough resources towards maintaining the apple trees, or that the resources were misallocated, leading to poor quality and lack of mature apples)

What's wrong with this way of thinking: "Economics claim that when the price of something goes up, producers increase the quantity supplied to the market. But last year, the price of oranges was really high and the supply was really low! Economists are wrong!

The statement is incorrect as it oversimplifies the relationship between price and quantity supplied. According to the law of supply, producers will increase the quantity supplied to the market as the price of a good or service increases, all other things being equal. However, other factors can affect the supply of a good, including natural disasters, technological disruptions, and changes in input prices, among others. In the case of oranges, it's possible that there was a decrease in the supply due to a disease affecting the crop or unfavorable weather conditions that impacted the harvest. This would lead to a decrease in the quantity supplied, even if the price was high. To illustrate this, we can use a supply and demand diagram. If the price of oranges increases, the quantity supplied is expected to increase as well, and the supply curve shifts to the right (S1 to S2). However, if there is a decrease in the supply due to external factors, the supply curve will shift to the left (S3), causing the price to increase even further and the quantity supplied to decrease. In conclusion, while the law of supply states that producers will increase the quantity supplied to the market as the price of a good or service increases, it's important to recognize that other factors can impact the supply of a good, leading to a decrease in the quantity supplied even when the price is high.

True/False Insulin Demand

The statement is likely true because insulin is a necessary and life-sustaining treatment for people with type 1 diabetes, and there are no perfect substitutes for it. As a result, the demand for insulin is relatively inelastic in the short run, meaning that a change in supply will result in a proportionately larger change in price. This is because people with diabetes must continue to purchase insulin even if the price increases significantly, as not having access to insulin could lead to severe health complications or even death. The deadweight loss in this situation arises from the fact that the higher price of insulin may discourage some people from using it, which can lead to worse health outcomes and higher costs for society in the long run. Additionally, the increased price may make it harder for low-income patients to afford insulin, which can result in rationing or underuse of the medication, further exacerbating the health and economic consequences of diabetes. Therefore, policy interventions may be needed to ensure that insulin remains affordable and accessible to those who need it.

"Pollution is causing $100 million worth of damage to the environment....

To determine if the statement is true, we need to conduct marginal analysis. Marginal analysis involves evaluating the costs and benefits of one additional unit of a decision. In this case, we need to compare the marginal cost of reducing pollution to the marginal benefit of reducing pollution. Suppose that reducing pollution by an additional $1 million would result in a reduction in damage to the environment by $20 million. Then, spending $2 million on reducing pollution would lead to a reduction in damage to the environment by $120 million. In this case, the marginal benefit of reducing pollution by $1 million is greater than the marginal cost of reducing pollution by $1 million. Therefore, we should spend more on fighting pollution. On the other hand, if reducing pollution by an additional $1 million only results in a reduction in damage to the environment by $5 million, then spending $2 million on reducing pollution would lead to a reduction in damage to the environment by $105 million. In this case, the marginal benefit of reducing pollution by $1 million is less than the marginal cost of reducing pollution by $1 million. Therefore, we should not spend more on fighting pollution. In summary, the statement that we are not spending enough on fighting pollution may or may not be true depending on the marginal benefit and cost of reducing pollution. Marginal analysis is needed to determine the optimal level of spending on fighting pollution.

Barb and Betty to Miami Beach

a) To determine which option costs less, we need to calculate the total cost of each option. Flying: Round-trip airline tickets for two people: 2 x $150 = $300 Car rental for one week: 7 x $25 = $175 Total cost of flying: $300 + $175 = $475 Driving: Gas for one round trip: $100 Lodging for one way: $150 Wear and tear on the car: $200 Total cost of driving: $100 + $150 + $200 = $450 Therefore, driving is the cheaper option, costing $450 compared to flying which costs $475. If Barb hates driving and would be significantly less happy on the road trip, then the cost of her discomfort should be included in the cost of the trip. However, it is difficult to put a monetary value on this, as it is subjective and depends on the individual. b) An econ class and a math class can be considered substitutes in the economic sense. This is because both classes fulfill a similar academic requirement and can often be used to meet the same degree requirements. An increase in the price of one class (e.g. due to limited availability or increased demand) may lead students to enroll in the other class instead, therefore decreasing the demand for the first class. Conversely, a decrease in the price of one class may increase demand for that class and decrease demand for the other class. Therefore, these classes are substitutes in the eyes of the student, as they can be used interchangeably to meet their academic requirements.

Wall Street Journal on Coffee Prices

a. If coffee started out at an equilibrium price of $1 per pound prior to the freeze, the demand and supply curves would intersect at this price point, indicating an equilibrium quantity of coffee consumed and produced. The graph would look like this: b. The freeze would reduce the supply of coffee, causing the supply curve to shift to the left. This would create a new equilibrium where the price of coffee is higher than the initial equilibrium price of $1 per pound. The new equilibrium price is $4.42 per pound, and the equilibrium quantity of coffee consumed and produced would be lower than the initial equilibrium. In this case, the supply curve shifts to the left due to the decrease in coffee production caused by the freeze. The demand curve remains the same, as consumers still desire coffee at the same levels as before the freeze. Therefore, the change in price is a result of a change in supply, not demand. c. The WSJ editorial's analysis is partially correct in that the market for coffee behaves as the basic textbook theory predicts: prices go up when demand exceeds supply, and prices come down when supply exceeds demand. However, the editorial overlooks the fact that the decrease in coffee prices was due to a supply shock, not a consumer movement. The freeze caused a reduction in coffee supply, which resulted in higher prices. The eventual decrease in prices was due to the market adjusting to the new equilibrium after the supply shock. The editorial incorrectly attributes the decrease in coffee prices to the power of the consumer movement, which was not a relevant factor in this case.

Pasta/noodles Barilla

a. If rice crops are reduced by half due to unexpected bad weather, then the supply of rice, which is a substitute for noodles, will decrease, causing a leftward shift in the supply curve of rice. As a result, the price of rice will increase, leading to an increase in the cost of producing noodles, which will shift the supply curve for noodles leftward as well. The decrease in supply will lead to an increase in the price of noodles and a decrease in the quantity of noodles demanded. The extent of the shift in the supply and demand curves will depend on the elasticity of both curves. b. If the bad weather reduces tomato production, which is a complementary good for noodles, the demand for tomato sauce will decrease, leading to a leftward shift in the demand curve for tomato sauce. As a result, the price of tomato sauce will decrease, which will shift the supply curve for noodles leftward as well. The decrease in supply will lead to an increase in the price of noodles and a decrease in the quantity of noodles demanded. c. If the bad weather reduces wheat crops, a key component of flour, then the supply of flour, and therefore noodles, will decrease, leading to a leftward shift in the supply curve for noodles. The decrease in supply will lead to an increase in the price of noodles and a decrease in the quantity of noodles demanded. d. If the FDA issues a report stating that frequent noodle consumption favors early diabetes type II in men and women over 30 years of age, the demand for noodles may decrease due to a shift in consumer preferences. This will lead to a leftward shift in the demand curve for noodles, causing a decrease in the quantity of noodles demanded and a decrease in the equilibrium price of noodles.

Describe how the concepts of scarcity, choice, and opportunity cost apply to each of the following situations. (Sunday Afternoon, Oswego County legislature)

a. In this situation, the scarce resource is time, specifically the limited time available on a Saturday afternoon. The choice to be made is whether to use that time to nap or work on the assignment. The opportunity cost of napping would be the time that could have been used to work on the assignment, while the opportunity cost of working on the assignment would be the time that could have been used to nap or engage in some other leisure activity. b. In this situation, the scarce resource is money, specifically the revenue that the county government can generate through property taxes. The choice to be made is whether to increase property taxes by 35% or only 15% and lay off 100 county workers. The opportunity cost of increasing property taxes by 35% would be the potential loss of support from taxpayers and voters who may view the increase as too high, while the opportunity cost of increasing property taxes only 15% and laying off 100 county workers would be the negative impact on the affected workers and their families.

CDC Cigarette prompt

a. The cigarette market is likely to be negatively impacted by the CDC's findings, as the increased risks associated with smoking will likely lead to a decrease in the demand for cigarettes, as consumers become more aware of the dangers associated with smoking and opt to purchase other goods or services instead. b. The cigarette market equilibrium is not likely to be efficient for society, as smoking has a negative externality on society. The negative externality is the cost imposed on society by the smoking of cigarettes, in terms of the health risks it poses, the costs associated with healthcare utilization and absenteeism from work, and the overall decrease in health. As these costs are not reflected in the market price of cigarettes, the equilibrium is not efficient for society. c. The Treasury Department's proposed tax of 5 US dollars per package of cigarettes is a reasonable measure, as it seeks to internalize the negative externalities of smoking. The tax will likely lead to an increase in the price of cigarettes, which will in turn lead to a decrease in the demand for cigarettes, reducing the overall number of smokers and thus reducing the negative externalities associated with smoking. This would lead to a more efficient market equilibrium, one that better reflects the true costs of smoking.

John Stossel

a. The prices of bottled water and generators rise dramatically after a hurricane in affected areas due to an increase in demand and a decrease in supply. The demand for bottled water and generators increases as people need these items to survive and cope with the aftermath of the hurricane. At the same time, the supply of these items decreases due to the disruption of the supply chain, transportation, and other logistical issues caused by the hurricane. The increase in demand and decrease in supply lead to a shortage of these items, which drives up the prices. This can be represented graphically by a shift in the demand curve to the right and a shift in the supply curve to the left, resulting in a higher equilibrium price and a lower equilibrium quantity. b. Yes, I agree with the position that price gouging serves an important purpose. In a market economy, prices are the signals that guide the allocation of resources. When the supply of a good or service is limited, the price serves to ration the available supply to those who value it the most. If prices are kept artificially low, there may not be enough of the good or service to go around, and it may end up being hoarded or wasted by those who don't value it as much. By allowing prices to rise in response to a shortage, price gouging encourages people to conserve the scarce resources, discourages hoarding and wasteful consumption, and incentivizes suppliers to bring more of the product to the market. This ultimately benefits the consumers who value the product the most. c. Criteria that should be in place to separate market-oriented increases in prices from situations of real price-gouging may include factors such as the magnitude and duration of the price increase, the availability of substitutes, the extent of market power of the supplier, and the degree of competition in the market. In situations where there is evidence of collusion, fraud, or coercion, government intervention may be warranted to prevent price gouging. However, in most cases, market-oriented price increases are a necessary and desirable feature of a well-functioning market economy, and attempts to regulate or control them may have unintended consequences, such as creating shortages, reducing incentives for suppliers, and distorting market signals.

HPV Vaccine for 12 year olds, Deb Fitzgerald

a. The regulation that requires girls to receive the HPV vaccine by age 12 is an example of a government intervention to address a market failure caused by positive externalities. Positive externalities occur when the consumption of a good or service benefits not only the consumer but also other individuals who are not directly involved in the transaction. In this case, when a girl is vaccinated against HPV, it not only protects her from cervical cancer but also reduces the transmission of the virus to others, including boys and men, who may develop other types of cancer as a result of HPV infection. This reduction in transmission creates a positive externality that is not reflected in the market price of the vaccine. As a result, the market may underprovide the vaccine, leading to suboptimal vaccination rates and an increased risk of HPV-related cancers. By requiring girls to receive the vaccine, the government is addressing this market failure and promoting the public good of reducing the transmission of HPV. b. One potential government failure that could result from the regulation is the misallocation of resources. Requiring the vaccine for all girls may not be the most efficient way to address the positive externality. For example, it may be more cost-effective to provide subsidies or incentives to increase vaccination rates among high-risk populations, such as low-income families or communities with high rates of HPV infection. Additionally, the regulation may face resistance from some parents who object to mandatory vaccination on ethical or religious grounds. This could lead to a loss of public support for the regulation and undermine its effectiveness. Finally, the government may face challenges in ensuring that the vaccine is widely available and affordable, particularly in low-income or rural areas where access to healthcare may be limited.

Able's Factory, Baker's Farm

a. Yes, Baker's property right to the land is being violated by the pollution from Able's factory. Property rights refer to the legal right to use, control, and transfer property, including land. The pollution from Able's factory is interfering with Baker's ability to use and control her land without interference, and as such, her property rights are being violated. b. Yes, if the pollution invades Baker's home and harms her health, her property rights are violated. Her property right to her home includes the right to use and enjoy the property without being subjected to harmful pollution from external sources. c. An externality is present in both cases. In the first case, it is a negative externality. The pollution from the factory is an unintended cost imposed on Baker's crop production. In the second case, it is also a negative externality, as the pollution is imposing an unintended cost on Baker's health. The negative externalities are arising because the cost of pollution is not being fully borne by the factory, and it is affecting the well-being of Baker, who is not part of the transaction