Assignment:
1 Effect of Weather on Prices.
Suppose a freeze in Florida wipes out 20 percent of the orange crop. How will this affect the equilibrium price and quantity of Florida oranges? That is, will price and/or quantity increase, decrease, or remain the same?
2 Immigration Control and Prices.
Consider the market for raspberries. Suppose a new law outlaws the use of foreign farm workers on raspberry farms, and the wages paid to farm workers increase as a result. Predict the effects of the higher wage on the equilibrium price and quantity of raspberries.
3 Market Effects of a Tax.
Consider the market for fish. Use a demand and supply graph to predict the effect of a tax paid by fish producers of $ 1 per pound of fish. Use a demand and supply graph to predict the market effect of the tax on the equilibrium price and the equilibrium quantity of fish.
4 Innovation and the Price of Mobile Phones.
Suppose that the initial price of mobile phone is $100 and that the initial quantity demanded is 500 phones per day. Suppose a new technology decreases the cost of producing mobile phones. Predict the effect of this on the equilibrium price and quantity of the mobile phone.
PART II: MARKET FAILURE
1 What is the meaning of market failure?
2. List at least five conditions that may result in market failure.
3 What is the meaning of externality?
4 Give example of positive and negative externality, and explain in each case how it results in market failure.
5 If there is a negative externality, explain
a. Possible private policy action to cure it, and
b. Possible public policy action to cure it.
PART III: NATIONAL INCOME ACCOUNTING
1 Why are national income and products account valuable?
2 What are the components of the major categories in each of the two major ways used in measuring national income and product account?
3 What is the difference between nominal GDP and real GDP?