# Economics -Q66

## Economics -Q66 Online Services

1. (26 pts) Consider the market for honey, which is in perfect competition. All firms have the same MC curve; it always costs \$5 to make each jar of honey. The demand for honey is given by

D: P = 20 – 0.05Q

Each jar of honey generates \$5 in positive externalities because honey bees pollinate nearby plants and crops, which we will model as increasing the social marginal benefit. For now, we will consider only what happens in the market equilibrium (not the market optimum).

a) (2 pts) What are the market equilibrium price and quantity?

b) (2 pts) In equilibrium, how much externality is created?

c) (2 pts) In equilibrium, what is the sum of CS and PS?

d) (2 pts) In equilibrium, how much TS is created?

e) (2 pts) Suppose we forcibly required five more consumers to buy at the market price, moving the total market quantity from Qmkt to Q’ = Qmkt + 5. How much consumer surplus do these additional consumers lose from being forced to participate in this market? (Assume these coerced consumers are the next people who would buy, so their WTP are given by the demand curve from quantityQmkt to Q’.)

f) (2 pts) How much externality is created, total, at Q’?

g) (2 pts) How much TS is there at Q’?

h) (4 pts) Now suppose the government institutes a subsidy of \$7 per honey jar, paid to the suppliers. Using the same methods as the tax problems earlier in the term, solve for the post-tax equilibrium quantity, price received by suppliers, and market price.

i) (4 pts) What are the post-subsidy CS, PS, G, and X?

j) (2 pts) What is the post-subsidy DWL in the honey market?

You can read more about our case study assignment help services here.

## How it Works

#### How It works ?

Step 1:- Click on Submit your Assignment here or shown in left side corner of every page and fill the quotation form with all the details. In the comment section, please mention Case Id mentioned in end of every Q&A Page. You can also send us your details through our email id support@assignmentconsultancy.com with Case Id in the email body. Case Id is essential to locate your questions so please mentioned that in your email or submit your quotes form comment section.

Step 3:- Once we received your assignments through submit your quotes form or email, we will review the Questions and notify our price through our email id. Kindly ensure that our email id assignmentconsultancy.help@gmail.com and support@assignmentconcultancy.com must not go into your spam folders. We request you to provide your expected budget as it will help us in negotiating with our experts.

Step 4:- Once you agreed with our price, kindly pay by clicking on Pay Now and please ensure that while entering your credit card details for making payment, it must be done correctly and address should be your credit card billing address. You can also request for invoice to our live chat representatives.

Step 5:- Once we received the payment we will notify through our email and will deliver the Q&A solution through mail as per agreed upon deadline.

Step 6:-You can also call us in our phone no. as given in the top of the home page or chat with our customer service representatives by clicking on chat now given in the bottom right corner.

## Case Approach

#### Scientific Methodology

We use best scientific approach to solve case study as recommended and designed by best professors and experts in the World. The approach followed by our experts are given below:

Defining Problem

The first step in solving any case study analysis is to define its problem carefully. In order to do this step, our experts read the case two three times so as to define problem carefully and accurately. This step acts as a base and help in building the structure in next steps.

Structure Definition

The second step is to define structure to solve the case. Different cases has different requirements and so as the structure. Our experts understand this and follow student;s university guidelines to come out with best structure so that student will receive best mark for the same.

Research and Analysis

This is the most important step which actually defines the strength of any case analysis. In order to provide best case analysis, our experts not only refer case materials but also outside materials if required to come out with best analysis for the case.

Conclusion & Recommendations

A weak conclusion or recommendations spoil the entire case analysis. Our expert know this and always provide good chunks of volume for this part so that instructors will see the effort put by students in arriving at solution so as to provide best mark.

## Related Services

2. (16 pts) The market for SUVs is in perfect competition. Every time an SUV is driven, it creates pollution, congestion, and potential hazards to other drivers. Model this as a negative externality on consumption (so apply the externality to the demand curve).

Draw three graphs of this market on the same page, stacked vertically, NOT side-by-side.
a. (4 pts.) In the top graph, draw the normal supply and demand curves, indicate the market equilibrium price and quantity, and indicate the CS and PS regions.

b. (6 pts.) In the middle graph, draw the SMC and SMB curves, indicate the efficient quantity, and shade in the TS that would be realized at the efficient point. Draw a vertical line to indicate where the market quantity is (just taking the location from part a; do NOT represent the private curves on this graph). Indicate the DWL triangle.

c. (6 pts.) In the bottom graph, draw the PMC, PMB, SMC, and SMB curves. (Note: two of these curves are the same line.) Indicate the market quantity and price, the CS, the PS, the X region, and the DWL.

3. (30 pts) The Duke of SUNYia is considering a law mandating that everyone in the realm purchase health insurance (similar to the laws in the far-off mythical place called “Massachusetts”). The population of SUNYia suffers from exactly one potential malady, heart attacks. If a resident suffers a heart attack, then the hospital treatment will cost \$130,000. If a resident buys insurance, she pays the premium, and then the insurer pays for ALL the expenses of the heart attack.

Actuarial tables show that 1,300 of the 8,000 residents of SUNYia face a 12% chance of a heart attack (the high-risk group), that 3,100 of the 8,000 residents face a 2% chance (the medium-risk group), and that the remaining 3,600 consumers face a 1% chance (the low-risk group). Each individual consumer’s Willingness-to-Pay for health insurance is TWICE the insurance company’s expected payout for that consumer. Each consumer knows her own type (so the WTP for a low-risk consumer is less than the WTP of a high-risk consumer). The insurer does NOT observe an individual’s type. The insurer has to charge the same price to everyone (community rating) and has NO access to any sort of screening mechanism.

We’ll assume that the insurance company follows a very simple rule for setting its premium (the price of the insurance). The premium is set at 130% of the insurance company’s average expected payout for the consumers the insurance company expects to buy the insurance. (In equilibrium, the insurer correctly judges which types will buy the insurance.) The insurance company cannot price discriminate or exclude anyone willing to buy their insurance at the stated price.

a. (6 pts) What is the insurance company’s expected payout if it insures a low-risk person? A medium-risk person? A high-risk person? What is each type’s WTP for insurance?
b. (4 pts) What is the insurance company’s expected per capita payout if it insures the entire population (assuming that everyone actually bought the insurance at the required price)? What premium would it set?

c. (3 pts) What is the insurance company’s expected per capita payout if it insures just the high-risk and medium-risk consumers, but not the low-risk consumers (assuming that those types actually bought the insurance at the required price)? What premium would it set?

d. (2 pts) If the insurer priced insurance on the assumption that everyone would buy it, who would actually buy it? Would the insurer make positive profits, zero profits, or negative profits?

e. (2 pts) If the insurer priced insurance on the assumption that only the high risk and medium risk types would buy it, who would actually buy it? Would the insurer make positive profits, zero profits, or negative profits?

f. (5 pts) In equilibrium, what price does a profit-maximizing insurer set (assuming it follows the given pricing rule)? What is the total CS for each type and the expected firm profits ? What is the total social surplus?

g. (6 pts) What would be the total CS for each type and the expected firm profits if the Duke passes a law requiring everyone to buy insurance? What is the total social surplus? Assume the insurer continues to price at the same formula as before (a fixed multiple of the expected cost of insuring the people expected to buy the insurance).

4. (8 pts) In Marron and Toder (2014)

a. (4 pts.) Describe how the issue of ‘standing’ affects assessment of the social marginal cost of carbon.

b. (4 pts.) What is one problem with using selective subsidies of renewables, instead of carbon taxes?

5. (20 pts) Suppose a project will provide the following costs and benefits.

Year 0: cost \$300 million
Year 1: cost \$200 million
Year 2: cost \$150 million
Year 3: cost \$100 million, benefit \$140 million
Year 4: benefit \$250 million
Year 5 to Year infinite: benefit \$40 million

a. (10 pts) Write out the formula to compute the PDV of the project as a function of the interest rate, r. This should be something that I could use to calculate this with just a simple calculator; I do NOT want to see what you would enter into a fancy financial calculator. You may, of course, use exponents.

Hint: costs are just negative benefits. So year 0 has a value of -300.

For example, an answer might look like: PDV = 20/(1+r)2+ 10/r * 1/(1+r)

b. (10 pts) Create a line graph (what Excel calls an X Y scatter, but connect the points with a smooth curve) showing the PDV on the Y axis and the interest rate on the X axis, for the r values .01, .02, .03, .05, .07, .1, .12, and .15. You should see that the choice of interest rate makes a huge difference.

Product Code-Economics -Q66