HW2 - EEP 100 Homework # 2 Due in class February 16 Perloff...

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EEP 100 Homework # 2 Perloff Due in class February 16 Questions 1. (3.11) 1 Suppose that Boston consumers pay twice as much for avocadoes as they pay for tangerines, whereas San Diego consumers pay half as much for avocadoes as they pay for tangerines. Assuming that consumers maximize their utility, which city’s consumers have a higher marginal rate of substitution of avocadoes for tangerines? Explain your answer. 2. Some of the largest import tariffs, the tax on imported goods, are on shoes. Strangely, tariffs are higher, the cheaper the shoes. The highest U.S. tariff, 67%, is on a pair of $3 canvas sneakers, whereas the tariff on $12 sneakers is 37%, and that on $300 Italian leather imports is 0%. (Adam Davidson, “U.S. Tariffs on Shoes Favor Well-Heeled Buyers,” National Public Radio, June 12, 2007, www.npr.org/templates/story/story.php?storyId=10991519 .) Laura buys either inexpensive, canvas sneakers ($3 before the tariff) or more expensive gym shoes ($12 before the tariff) for her many children. Use an indifference curve-budget line analysis to show how imposing the unequal tariffs affects the bundle of shoes she buys compared to what she would have bought in the absence of tariffs. Can you confidently predict
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HW2 - EEP 100 Homework # 2 Due in class February 16 Perloff...

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