Assignment
1. Southern California Edison (SCE) is the only provider of electricity in Orange County. The rates SCE is allowed to charge are actually set by a branch of state government, the Public Utility Commission (PUC), but assume for purposes of this question that the PUC allows SCE to charge whatever it wishes. Assume further that SCE acts as a profit-maximizing entity. SCE currently charges lower rates for farmers who use electricity to run their irrigation pumps than for commercial enterprises that use electricity to run their air conditioners. The International Brotherhood of Electrical Workers (IBEW) is a union that seeks to represent the information technology workers at SCE. Assume the IBEW has just won a union representation election, and has become the sole bargainer with SCE for the wages to be paid IT workers at SCE.
a) What is likely to happen to the electrical rates charged farmers and commercial enterprises?
b) Will one change more than the other?
Illustrate your answers with appropriate diagrams.
2. The United States is considering imposing tariffs on various imports. Assume there are no legal barriers, federal, state, or international, to the US choosing the products and the countries on which to impose the tariffs. Consider the following attributes of foreign countries and products, assuming in each case that there are US manufacturers as well as foreign manufacturers of the products:
A. Some foreign countries whose imports to the US comprise a large percentage of the US markets for those goods. Other foreign countries comprise a small percentage of the US markets for those goods.
B. Some products face an elastic demand in US markets. Others face inelastic demand.
C. The American production process for some goods is elastic, and for others it's inelastic.
D. The foreign production process for some goods is elastic, and for others it's inelastic; and these are not necessarily the same elasticities for the supply of the goods by American producers.
Assume that the US has set as its goal to collect a certain amount of money from new tariffs. The US can decide what products and what countries on which to impose the tariffs. From the point of view of raising prices least to US consumers, but still collecting the amount of money the government has set as its goal, describe the kinds of products and countries on which the US will impose tariffs, using the considerations A through D mentioned above. Illustrate your answer with appropriate diagrams.
3. TWIX is a candy that is often sold in twin packages, as well as in single packages. The two packages are attached to each other in such a way that upon opening one, a consumer will almost always open the other as well, even if the consumer did not wish to do so.
a) What does that tell you about the likely price charged for the twin packages, compared with the price of two single packages?
b) Why were they TWIX bars packaged in this way?
c) As precisely as you can, please state the economic term for what is happening here?
d) Are other candy makers likely to emulate this marketing device?
4. The State of California proposes a rebate to consumers on the purchase of energy efficient light bulbs. When California consumers purchase such light bulbs, and send in a copy of their receipt to the state government, the state government sends that consumer a check for 25 cents for every such lightbulb. Light Bulb manufacturers are attempting to convince the State of California to change this program into a subsidy of 25 cents paid to the manufacturers for every energy efficient light bulb sold in California. Which program is likely to cost the state government more? Show diagrams to prove your answer, and consider at least two different sets of assumptions about those diagrams.