Ch09-HW
1) Suppose a perfectly competitive
market for televisions is characterized by the following supply and demand
curves:
Demand:
P =
1000 – Q
Supply
(Marginal Cost to Firms): P = 3*Q
The
production process emits 100 lbs of CO2 pollution for every TV. The cost to the
environment is $2 per lb of C02.
A) Draw a supply and demand diagram, and
include the marginal social cost of TV production. Identify the equilibrium and
efficient outcomes.
B) The government imposes a pollution
tax of $2 per lb of CO2 emission. Firms invest in abatement technology, which
reduces emissions to just 10 lbs per TV. What is the new equilibrium outcome?
Is it efficient?
2) You
are watching TV at a friend’s house in the village. Another friend calls and
asks you to pick her up and give her a car ride from Persson Hall.
A) Suppose your friend calls at 8 PM. What is the
marginal cost you incur by supplying a ride? Is the marginal social cost
different from this amount?
B) Suppose your friend calls at 3 PM. Compared to
part A, are there any additional private or social costs involved with
supplying a ride?
C) Do Colgate students supply an efficient number
of rides to and from Persson Hall during the day? What policy could ensure an
efficient outcome occurs? Would you support this policy?
3) When
banks offer loans, they face problems of adverse selection (attracting risky
customers) and moral hazard (people who refuse to repay the loan, once
received). What are microfinance firms? According to The Economist, how have some reduced
these problems?
4) Many
5) Some professors require your attendance at
every class and will penalize you for each absence. Why does this policy make
more sense in theater than in economics?
6) The interviewee in this Puget
Sound Business Journal article essentially makes up the word “clustering.”
What is the term for the economic phenomenon he is trying to describe? Why
might firms want to cluster?