Problem Set 3a

Problem Set 3a - John (J.C.) Stevens EC205L- Section 216...

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John (J.C.) Stevens EC205L- Section 216 Problem Set #3 This problem set is due at the beginning of class on 2/23/05 You may work with one other person. You should work only with that partner—that means two groups should not get together and work as a team of four. Please answer all questions to the best of your ability. Circle the multiple choice answer of your choice, and then explain why your answer is correct. It is possible to earn partial points, so do the best you can. NO CREDIT WILL BE GIVEN FOR ONLY SELECTING A MULTIPLE CHOICE ANSWER. 1. Consider the market for insulin. We tend to believe that this market has almost a perfectly inelastic demand curve. Draw a representation of the market below. 2. Now suppose the government decides to increase the tax on a bottle of insulin. Who will “really” pay the tax? (only a verbal explanation is necessary). a) the firm b) the consumer c) the firm and consumer will pay the tax d) no one will pay the tax The consumer will really pay the price of the tax, because since the demand is
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Problem Set 3a - John (J.C.) Stevens EC205L- Section 216...

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