Problems and Applications
I. Demand and Supply
Using only demand and supply concepts (graphs too) explain the reality of decreases in
food prices and an increase in caloric intake (people getting fatter). Be specific!
II. Consumer Choice – Trash Pricing and Recycling
Much has been written in the press regarding the need to minimize personal disposal of
solid waste. Yet most cities till charge a flat fee for garbage collection. Could you
propose a different pricing strategy that might lower the amount of solid waste per
household? Use a graph also. What unintended consequences might result from your
pricing strategy?
III. Exchange, Efficiency, and Prices - Ticket Scalpers: Saints or Sinners
Team owners and politicians make much of the evil done by scalpers. Please give two
economic reasons in support of ticket scalpers.
IV Costs of Production
Explain how the “Law of Diminishing Returns” could be applied to dealing with Global
Warming.
V. Consumer Surplus - Benefits from Improvements in Health
a. From 1970 to 2000 according to Profs. Murphy and Tapel medical expenditures
grew by $34 trillion.
b. Benefits from these expenditures in the form of greater longevity amounted to $95
billion (50% of that came from a reduction in heart attacks)
c. The net of expenditure and benefit is $61 billion. Further, a 1% decline in
mortality from cancer or heart disease resulted in an $500 billion value to
Americans.
Translate all of these facts into an explanation of consumer surplus and use graphs if you
can.
VI. Marginalism
Let’s say you are walking late at night in a big downtown area of an American city. A
mugger accosts you and asks for all of your money ( say you have $200.00). Having just
studied the microeconomic concept of “marginalism” you decide to apply it to the
mugger. You reply “How about I give you $150.00 and you just rough me up a bit.”
