1. If you both bring supplies to squeeze your own lemons, you can keep up with flow of customers, can charge more per cup and make about an average of $54.60 ? If you both bring some awful, over-sweetened powdered lemonade mix, you can keep up with the flow of customers, but you have to charge less per cup (because powdered mix sucks) and make about an average of $26.90 ? If one of you brings supplies for squeezing lemons, and the other brings that terrible powder, the one who brings the squeezing supplies can't keep up with the flow of customers and only earns an average of $4.44; the one who half-asses it with powder can keep up and makes about an average of $13.45 a. Construct a 2x2 matrix depicting the payoffs described above b. A dominant strategy is one that works best regardless of the other player's choice. What is the dominant strategy is this example?
2. Consider the following information about the market for beanies with a propeller on them: P = 100 - 0.15QD P= 25+0.1QS a. What is the equilibrium market price for beanies with a propeller on them? b. How many beanies are sold at market price? How many are demanded? c. What is the producer surplus at market price? d. What is the consumer surplus at market price? e. The government becomes enraged at the exorbitant prices seen on beanies with propellers on them. They launch a massive campaign about how beanies with propellers on them are a right, and a necessity for all residents, that it is cruel and unkind of Big Beanie to gauge because their product is so essential to an acceptable standard of living. They pass a law decreeing that 30 is the maximum price a firm is allowed to charge for a beanie with a propeller on it. Draw the impact on the market for beanies with a propeller on them f. What is the quantity demanded for beanies with a propeller on them at the new legally-mandated price? g. What is the quantity supplied for beanies with a propeller on them at the new legally-mandated price? h. What is the deadweight loss caused by the new legally-mandated price? i. What changes in surplus occur due to the new legally-mandated price? j. What assumption do the calculations above rest on? Is it a fair assumption to make in the real world?
3. Consider the following information about the market for Bayer Heroin-Hydrochloride: P = 10.525 - 0.1QD P= 3.25+1.4QS a. What is the equilibrium market price for heroin? b. What quantity of heroin is sold at market price? What quantity is demanded? c. What is the producer surplus at market price? d. What is the consumer surplus at market price? e. The government is shocked to learn some consumers are not buying heroin for any medicinal usage, but in fact they are buying it for RECREATIONAL USAGE!!!! (Add your own scary background music). As such, they mandate that the price of heroin cannot be lower than 7.15 per bottle, to curb abuse. f. What is the quantity demanded for heroin at the new legally-mandated price? g. What is the quantity supplied for heroin at the new legally-mandated price? h. What is the deadweight loss caused by the new legally-mandated price? i. What changes in surplus occur due to the new legally-mandated price?
4. Consider a macroeconomic model of an economy in Long Run market equilibrium. Suppose there were a shock which was going to cause a decrease in aggregate demand. a. What steps could a government take in order to avoid the long-run market correction? b. Why would the government want to intervene rather than allow the market to correct itself? c. Why do people oppose government intervening in such ways? d. Why does the government typically only intervene during recessionary periods rather than also in expansionary periods as well?