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Problem Set #3 - ECON 162B 90 91 Fall 2007 PROBLEM SET...

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ECON 162B - 90, 91 Allison Kim Fall 2007 due: September 28 PROBLEM SET NUMBER THREE 1. See attached. 2. See attached. 3. For each of the following goods, briefly describe the allocation mechanism that is most commonly used in the United States: a. Pepsi cola: Markets are used for the sale of Pepsi cola, because it is a normal good that often is consumed by the highest bidder. b. gasoline: Markets are used for the sale of gasoline, because it is a normal good that is consumed by the highest bidder. c. medical care: Markets are used for medical care in terms of selling medicine, drugs, services and care; they are goods and services that can be bought by high bidders. In addition, government edict is an allocation mechanism used for medical care through the use of arbitrary criteria, such as age, disability and financial status, through programs such as Medicare and Medicaid. d. marijuana: Markets are used as the allocation mechanism for the sale of marijuana, because it is a good that people would be willing to pay high prices for. In some cases, it can be sold through the queuing mechanism, as customers would have to purchase marijuana from known drug dealers, but markets are the main allocation mechanism. e. guaranteed student loans: Government edict is the allocation mechanism for guaranteed student loans. Using arbitrary criteria, such as race and financial status, student loans are only guaranteed to those who are underrepresented minorities or are extremely poor. Merit based criteria is also a factor, in which extremely high grades and community involvement are rewarded, but unfortunately not as significant as the arbitrary criteria.
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