Economy Problem Set 2 - Economics 103b Professor Friedman...

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Economics 103b Your Name: Professor Friedman Your TA: Fall 2007 Your Section, Time, and Day: Problem Set II Due November 19 1. (6 points) Public goods and bads. Old drivers clog the roads of Amherst slowing traffic and making it harder for other people to conduct their business. a. (1 point) Is it efficient for old people to drive? Explain your answer and specify conditions where it is or is not efficient. It is not efficient for old people to drive because of their lack of speed (physically and mentally). People have come to realize that old people have lower physical strength making them slow and vulnerable. They also have slower reflexes so when driving cars; they tend to go very slow… making it inefficient for younger and faster people. b. (1 point) In deciding to drive, do old people consider the social efficiency of their actions? No, old people do not consider the social efficiency of their actions or they would not have driven in the first place. Their inability to realize that they are slow makes them ignorant of their actions. c. (2 points) What could we do as individuals to stop these old drivers? Why don’t we? We as people could put a fee for driving when above a maximum age. This way there would be less interest for older people to drive and make it more efficient for younger people who prefers to drive fast. However, we don’t take such action because we want to be fair to all ages. d. (2 points) How could government action stop old drivers? The government could get involved in stopping old drivers by taxing them. i. Could government regulation increase economic efficiency? Yes, government regulations would increase economic efficiency if they tax the old drivers. It would decrease the amount of old drivers in the streets thus making it more efficient for younger drivers. ii. Who would lose and who would gain by government regulation? The old drivers would lose and the younger drivers would gain by government regulations. iii. Would you expect the gains to exceed the losses? Old people tend to be less productive then younger people. Yes, I would expect the gains to exceed the losses.
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2. (5 points) Making lemons: Your ambitious younger sister is making plans to open a lemonade stand this summer in your neighborhood cul-de-sac. She has done market research and has found that your next door neighbor likes lemonade according to
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This note was uploaded on 04/07/2008 for the course ECONOMICS 103b taught by Professor Friedman during the Fall '07 term at UMass (Amherst).

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Economy Problem Set 2 - Economics 103b Professor Friedman...

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