microeconomic homework

Principles of Microeconomics Problem Set 3 Due 9/11/2015

1. Draw a supply and demand graph and identify the areas of consumer surplus and producer

surplus. Given the demand curve, what impact will an increase in supply have on the amount of

consumer surplus shown in your diagram? (Chap 5 review question 1)

2. Use the distinction between the characteristics of private and public goods to determine

whether the following should be produced through the market system or provided by the

government: (Chap 5 review question 5)

a. French fries

b. Airport screening

c. Court systems

d. Mail delivery

e. Medical care

3. Suppose the Allan values a public good at $1 per unit, Barbara at 2$ per unit, and Charles at $3

per unit. If it costs the government $𝑥2 to provide x units of the good, how much should the

government provide? (Invented question)

4. To an economist, a government program is too big if an analysis of that program finds that MB

_____ MC. (Chap 6 Review question 2)

a. Is greater than

b. Is less than

c. Is equal to

d. Is less than twice as large as

e. Is more than twice as large as

5. Select all of the following that are true. To an economist, a coercive government can be useful

in order to: (Chap 6 review question 1)

a. Reallocate resources in order to improve efficiency.

b. Fight negative externalities.

c. Ensure low gasoline prices.

d. Provide a low-risk economic environment for individuals and firms.

6. Consider a specific example of the special-interest effect and the collective action problem. In

2009, it was estimated that the total value of all corn production subsidies in the United States

was about $4 billion. The population of the United States was approximated 300 million.

a. On average, how much did corn subsidies cost per person?

b. If each person in the US is only willing to spend fifty cents to support efforts to overturn

the corn subsidy, and if anti-subsidy advocates can only raise funds from 10% of the

population, how much money will they be able to raise for their lobbying efforts?

c. If the recipients of corn subsidies donate just 1% of the total amount that they receive in

subsidies, how much could they raise to support lobbying efforts to continue the corn

subsidy?

d. By how many dollars does the amount raised by recipients of the corn subsidy exceed

the amount raised by the opponents of the corn subsidy?