202-S08 PS2 - Economics 202 Problem Set 2 Spring 2008 1...

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Economics 202 Problem Set 2 Spring 2008 1. Some economists find it interesting that the AMA (a doctors’ group) plays a role in determining the supply of physicians in the U.S. Some doctors would like to reduce the number of foreign-trained doctors that are allowed to practice in the U.S. What might be the effect of such a reduction on the price and quantity of doctor services in the U.S.? How might U.S. consumers and doctors be affected? (Hint: The elasticity of demand for medical care in the U.S. is considerably less than one.) 2. Auerbach’s demand for frozen custard is given by P = 20 – 2Q A while that for Kotlikoff is given by P = 40 – 2Q K . Supposing that these are the only two consumers in this market, what is the market demand for frozen custard? 3. Suppose that Pete Pittsnogle consumes pomegranates and mangos. The price of pomegranates is $1 per unit while the price of mangos is $0.75 per unit. Assuming that Pete is spending all of his income, explain in each case below whether Pete is consuming his optimal bundle and, if not, how he should adjust his bundle. A. Pete’s marginal utility for pomegranates, MU P , is 20 while his marginal utility for mangos, MU M , is 18. B.
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202-S08 PS2 - Economics 202 Problem Set 2 Spring 2008 1...

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