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Instructions: Answer all of the questions below. Please show work for each. All

 

answers requiring numerical responses must provide some analytical

 

exposition/justi?cation that rationalizes the numeric solution.

 

1. Suppose the market for economics textbooks at Morehouse College is as

 

follows:

 

Quantity of Books Supplied Quantity of Books Demanded

 

(QS)

 

(QD)

 

-20

 

10

 

-7.5

 

7.5

 

-5

 

7

 

-2.5

 

6.5 Price of Books

 

(Pb)

 

0

 

5

 

6

 

7 A. At what price is this market for economics textbooks in equilibrium?

 

B. What is this market worth in dollars to society?

 

C. Suppose out of a concern for the ?nancial burden faced by students purchasing

 

textbooks, More- house administrators are able to implement and enforce a ?xed

 

price for economics textbooks at $4. What are the e?ects of this in the market for

 

textbooks? Are Morehouse student?s better or worse o??

 

2. Suppose a political jurisdiction has twenty units of ?governance capital? which it

 

can use to produce ten liquor store permits on Sunday, or one ?Blue Law?, which

 

bans the sale of liquor on Sunday. Suppose that on Sunday, each liquor store would

 

generate $500 in sales tax revenue, would cause one half of a Driving Under the

 

In?uence (DUI) death?with each death costing the political jurisdiction $700.

 

What would you recommend? Why?

 

3. Suppose in the country of Dopeland, the typical drug user?s demand for grams

 

of cocaine is given by qd = 1/2, and the typical dealer?s supply is given by qs =

 

P/5, where P is the price of a gram of cocaine. Think of qd and qs as decision rules

 

for individuals regarding the bene?t and cost associated with buying/selling

 

cocaine. A. Suppose drugs are illegal in Dopeland, and there is one dealer and 100 users.

 

How many grams of cocaine will be produced and sold in Dopeland? What will a

 

gram of cocaine sell for?

 

B. Suppose drugs are made legal in Dopeland, and the illegal dealer is replaced by

 

20 ?CokeMarts? started by entrepreneurs. How many grams of cocaine will be

 

produced and sold in Dopeland? What will a gram of cocaine sell for?

 

C. What is the value of the market for the illegal and legal market respectively?

 

5. Suppose there are two countries endowed with 10 units of Labor. In Country 1

 

the 10 units of Labor can produce a maximum of 100 Autos, or 200 Brain

 

Surgeries, with constant trade-o?s. In Country 2, the 10 units of Labor can produce

 

a maximum of 400 Autos or 200 Brain Surgeries with constant trade-o ?s. Suppose

 

transportation costs between the two countries was zero. As an economist, what

 

economic theory of human migration would you construct from this example?

 

Fundamentally, what explains why people may want to leave one country for

 

another?

 

6. Refer back to question #1 and utilizing the mid-point method, compute/describe

 

the price elasticity of demand between the market-clearing price and $4.

 

7. Refer back to question $1 and utilizing the mid-point method, compute/describe

 

the price elasticity of supply between the market-clearing price and $4.

 







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