Final Exam

What is the Samuelson Rule? Why does the market outcome, based on the actions of rational, self-interested individuals will deviate from the results of the Samuelson Rule

What are the major competitive strategies proposed by economists? How, for example, would elimination of the tax subsidy for employer-provided health insurance reduce spending on health care?

Graph the market for an illegal drug and explain the shape of each curve.    List at least four ways the US govt. fights the “war on drugs” and identify each as either a supply-side or a demand-side strategy.    On a new graph, illustrate a large decrease in supply and explain the result in terms of market P and Q.    On a third graph, illustrate a small decrease in demand and explain the new result.    Based on Parts 3 and 4, which strategies—supply or demand—are more effective in decreasing quantities of illegal drugs that are exchanged in these markets?

Graph the market for an illegal drug and explain the shape of each curve.    List at least four ways the US govt. fights the “war on drugs” and identify each as either a supply-side or a demand-side strategy.    On a new graph, illustrate a large decrease in supply and explain the result in terms of market P and Q.    On a third graph, illustrate a small decrease in demand and explain the new result.    Based on Parts 3 and 4, which strategies—supply or demand—are more effective in decreasing quantities of illegal drugs that are exchanged in these markets?    If you were the head of the US Congressional Finance Committee, how would you allocate funds among these strategies and why?

Newsom has committed the state to a $990-million agreement with a China-based electric car company to produce 200 million protective masks. If you were an economics professor, what grade would you give Governor Newsom on his mask deal. Was the decision to pay high prices for PPE in the immediate aftermath of the onset of the virus a good financial decision? Is the evidence consistent with Newsom being corrupt and/or ignorant of basic economic theory?

The graph below represents a simplified hypothetical version of the market for medical procedures in Canada.  If the market is allowed to set the price and quantity of procedures, what price and quantity will it set?     P = $7,000, Q = 62 thousand     P = $12,000, Q = 106 thousand     P = $7,000, Q = 112 thousand     P = $49,000, Q = 62 thousand

In Wheelan's Naked Economics, and according the the chapter on "Economics of Information," which of the below statements correctly captures why students pay thousands of dollars to get into highly selective universities such as Harvard? Group of answer choices   Students who graduate from Harvard University are significantly brighter and better educated than those who do not.   Students engage in irrational behavior when they spend thousands of dollars on tuition and college expenses to study at highly selective universities such as Harvard.   There is little value to spending huge amounts of money to study at a highly selective university such as Harvard, because the university from which a student graduates has little (if any) impact upon the student's job or income prospects.   The choice of university signals information. Employers assume in general that the selectivity of universities ensures quality of education, and therefore graduates of Harvard and other selective universities…

Asymmetric information and/or imperfect information can cause two forms of market failure: 1) adverse selection and 2) moral hazard. Asymmetric information is where one party in the transaction has more information than the other party in the transaction. Imperfect information is a situation in which neither party has perfect information about the good/service being exchanged in a transaction. Such goods and services are sometime referred to as "experience goods." In the late 1990s, car leasing was very popular in the United States. A customer would lease a car from the manufacturer for a set term, usually two years, and then have the option of keeping the car. If the customer decided to keep the car, the customer would pay a price to the manufacturer, the “residual value,” computed as 60% of the new car price. The manufacturer would then sell the returned cars at auction. In 1999, the manufacturer lost an average of $480 on each returned car. (The auction price was, on average, $480…

Asymmetric information and/or imperfect information can cause two forms of market failure: 1) adverse selection and 2) moral hazard. Asymmetric information is where one party in the transaction has more information than the other party in the transaction. Imperfect information is a situation in which neither party has perfect information about the good/service being exchanged in a transaction. Such goods and services are sometimes referred to as "experience goods." In the late 1990s, car leasing was very popular in the United States. A customer would lease a car from the manufacturer for a set term, usually two years, and then have the option of keeping the car. If the customer decided to keep the car, the customer would pay a price to the manufacturer, the "residual value," computed as 60% of the new car price. The manufacturer would then sell the returned cars at auction. In 1999, the manufacturer lost an average of $480 on each returned car. (The auction price was, on average, $480…

Why is imperfect information a problem in market economies?  Give a current example of how imperfect information causes a disruption in a market.

Which of the below statements DOES NOT capture Economics? Group of answer choices   Economics tells us that there is no theoretical limit to how well we can live or how widely our wealth can spread.   The economic prosperity of an economy requires that every person in that economy have a Ph.D. degree.   Wheelan argues that the free market system does not make poverty inevitable. Economic development is not a zero-sum game.   Even the most prosperous economy will contiue to require certain manual tasks that do not require advanced college degrees. These tasks cannot be replaced with automation. Expecting Ph.D.s or people with professional education to do such tasks will have a high opportunity cost.

Senator Ernest Hollings once wrote that "consumers do not benefit from lower-priced imports. Glance through some mail-order catalogs and you'll see that consumers pay exactly the same price for clothing whether it is U.S.-made or imported."Is the statement that the Senator made a true statement or a false statement?  True  False

Friedrich von Hayek won the Nobel Prize in Economics in 1974. In awarding the prize, the Academy specifically referred to his conclusion quoting the Academy, not Hayek "that only by far-reaching decentralization in a market system with competition and free price-fixing is it possible to make full use of knowledge and information." What did the Academy mean?

In the United States, most hospitals are non-profit, while nearly all pharmaceutical companies are for profit. Can you offer an explanation based on the consumer shopping problem?

Assume that the government decides to subsidize the price of healthcare. The subsidy will be given directly to individual consumers of medical-related goods and services. Who is likely to benefit more from this subsidy: Providers (doctors, nurses, hospital staff, etc....) or Patients? Explain your answer using a supply and demand diagram.

Question Britain is proud of its National Health Service (NHS). In 1948, the National Health Service Act stipulated that the government would provide virtually free medical care for all citizens. Physicians receive a salary plus a per-patient payment from the government. The NHS embodies the socialist philosophy that profit-driven markets are not the appropriate mechanism for allocating health care. Markets serve two functions simultaneously: (1) allocation of existing goods and services among competing buyers, and (2) motivation for producers to bring new goods and services to the market. The NHS was established to replace market-determined prices with prioritized waiting lists as the allocation mechanism among competing buyers. Recently, however, the NHS has embraced the profit motive as a mechanism for performing the second function. The Economist reported that the government has introduced mechanisms to allow hospitals and individual inventors to profit from their innovations.…

In the words of Columbia economist Jeffrey Sachs, “Markets won.” But will markets stay the winner?

Define Degree of necessity?

Match each scenario with the panel that best describes what will happen to the market when the scenario occurs.  Explain your answer in a manner that someone who hasn’t taken economics before can understand and be sure to identify exactly what the market is that you’re describing.    The FDA creates stricter safety standards that drugs must meet before being brought to market. A well-known movie athlete serves as a Nike brand shoe spokesperson. Earthquakes destroy key manufacturing buildings. The USDA ordered the recall of steaks contaminated with E. coli. Unusually good weather affects corn production in Iowa. A new ban on cigarettes is instituted preventing them from being smoked in public areas. New technology reduces the amount of steel required to manufacture trucks. Smartphones are made using technology that increases battery life between charges.

Microeconomics and macroeconomics Determine whether each of the following topics would more likely be studied in microeconomics or macroeconomics.   Microeconomics Macroeconomics A consumer's optimal choice when buying a flat-screen TV       The effect of government regulation on a monopolist's production decisions       The government's decision on how much to spend on public projects         Understanding opportunity cost You work as an assistant coach on the university swim team and earn $15 per hour. One day, you decide to skip the hour-long practice and go to the county fair instead, which has an admission fee of $9. The total cost (valued in dollars) of skipping practice and going to the fair (including the opportunity cost of time) is    .

Briefly describe the theory of rational ignorance.

Nobel Prize winner and New York Times columnist Paul Krugman noted that economics is a lot like medicine: Knowledge is limited and many cures are quite painful. What are some other ways that economics and medicine are alike?