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BSc_II_Micro_II_PS_1_(1) - NAME ProblemSet#1...

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NAME: Problem Set #1 Micro II – Spring Term 2010 DUE DATE:   Monday, 25 January NO LATE ASSIGNMENTS WILL BE ACCEPTED 1. About 100 million pounds of jelly beans are consumed in the United States each year, and  the price has been about $0.50 per pound.  However, jelly bean producers feel that their incomes  are   too   low   and   have   convinced   the   government   that   price   supports   are   in   order.     The  government will therefore buy up as many jelly beans as necessary to keep the price at $1 per  pound.  However, government economists are worried about the impact of this program because  they have no estimates of the elasticities of jelly bean demand or supply.  a. Could the program cost the government more than $50 million per year?   Under what  conditions?  Could it cost less than $50 million per year?  Under what conditions?  Illustrate with  a diagram. b. Could this program cost consumers (in terms of lost consumer surplus) more than $50  million per year?  Under what conditions?  Could it cost consumers less than $50 million per  year?  Under what conditions?  Again, use a diagram to illustrate. 2. In 1998, Americans smoked 23.5 billion packs of cigarettes.  They paid an average retail  price of $2 per pack.
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