Economy
Economy assignment
Short Essays: Answer 2 of 4.
1) Draw a demand curve from the accompanying demand schedule. Show where the curve is elastic, inelastic and unit elastic. Use different points on the curve to prove your answer by using the mid-point method. Explain what the difference is between the three types of elasticity and why do firms care about what the elasticity of demand is (using graphs might be helpful in this answer).
Demand Schedule
Price
10
9
8
7
6
5
4
3
2
1
Quantity
2
4
6
8
10
12
14
16
18
20
2) Explain and draw a supply and demand curve for a normal good showing the equilibrium point and explain why it is a normal good. Explain the difference between moves along the curves and shifts in the curves. Give examples of what would cause movement and what would cause shifts and show the movement on your graph.
3) The government sees a cement company polluting the river. They want to internalize the externality of the cleanup costs to get the water safe for recreational use. They have two choices to accomplish their goal. They can either put a tax on a certain level of pollution or create a regulation that limits the amount of pollution allowed. If they use a regulation should they allow for pollution permits? Explain the benefits and detriments of each form of control. What would you recommend?
4) The government gets involved in the marketplace for many reasons. One reason is to ensure the welfare of the public. To help people they sometimes put in price ceilings and price floors. Use the examples of minimum wage and rent control to explain the benefits and detriments of government involvement. Include graphs of each one to show how they work.
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