Homework 6 Solutions

Homework 6 Solutions - Homework 6 Solutions Chapter 12 1....

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Homework 6 Solutions Chapter 12   1. Supply shifts right from lower costs and entry of new firms. Demand shifts right and consumers increase quantity demanded. LRAC shifts down. 9. All are examples of potentially Pareto efficient changes. (a). Both parties are better off; no one else is worse off. (b). Monopolist is hurt but gains to consumers are greater—enough to compensate losers. (c). If we assume that the taxes were being used wisely, this still might be an efficient change. Let’s assume that the revenues are made up by a new tax that does not distort consumer choices. The argument here is that taxes produce extra or excess burdens when they distort consumer choices. As the result of the repeal, some people buy sweaters, gaining utility over what they were buying before. (d). Simple elimination of waste is clearly efficient. 11. (a-b) The coin toss is more “equitable,” because both parties have the same chance of winning, regardless of their incomes. However, with the coin toss, there is no guarantee that the
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Homework 6 Solutions - Homework 6 Solutions Chapter 12 1....

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