Econ 100A PS4

Econ 100A PS4 - Department of Economics University of...

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Econ 100A-Spring 2008 Page 1 Problem Set 4 Department of Economics Spring 2008 University of California Prof. Woroch Economics 100A PROBLEM SET 4 Due: Thursday, April 3, 2008, 9:30 AM (in lecture) I. TRUE or FALSE and EXPLAIN 1. Concerned about the recent upward trend in corn prices, the U.S. government evaluates trade policies that would keep the domestic price near $5 per bushel of corn. If it wants to minimize the reduction of social surplus that results, it should place a quota on the amount of corn imported, rather than placing a tariff on imports. 2. A minimum wage always results in unemployment--in other words, there are more individuals willing to work at the minimum wage rate than there are jobs available. 3. Many journalists have described the Organization of Petroleum Exporting Countries (OPEC) as a “cartel.” This term is used incorrectly because, in practice, OPEC countries produce dramatically different levels of output from each other. 4. An inventor received a patent on a drug that cures herpes. While much was spent to discover the formula and the manufacturing process to make the pills, the marginal cost of producing the pills is zero for all practical purposes. If the inventor chooses to be a monopoly and not license the formula to other drug companies, it should produce a quantity such that demand for the product is unit elastic if it wants to maximize profits.
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Econ 100A PS4 - Department of Economics University of...

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