01 Jun Question 6. People sometimes argue that imports should be limited by gover
Question
6. People sometimes argue that imports should be limited by government policy. Suppose a government quota on the quantity of imports causes net exportsto rise. Explain why total expenditures and nationaloutput may rise after the quota is imposed. Who islikely to benefit from the quota? Who will be hurt?
7. Suppose the Herfindahl index for domestic productionof televisions is 5,000. Does this imply a verycompetitive or a noncompetitive environment?
14. Go to http://www.heritage.org and find the EconomicFreedom map. Use the map to determinethe most economically free continent and the leasteconomically free continent. Then do a search tofind out the real GDP per capita of people in representativecountries of those continents.
3. Use the accompanying table to answer thefollowing questions.
Quantity
Private Social
Cost Cost Benefit
1 $ 2 $ 4 $12
2 $ 6 $ 10 $22
3 $ 12 $ 18 $30
4 $ 20 $ 28 $36
5 $ 30 $ 40 $40
a. What is the external cost per unit of output?
b. What level of output will be produced?
c. What level of output should be produced toachieve economic efficiency?
d. What is the value to society of correcting theexternality?
4. What level of tax would be appropriate to internalizethe externality in exercise 3?
8. Suppose the following table describes the marginalcosts and marginal benefits of waste (garbage)
reduction. What is the optimal amount of garbage?What is the situation if no garbage is allowed to be
produced?
Percentage Marginal Costs Marginal Benefits
Of Waste (millions of dollars) (millions of dollars)
Eliminated
10% 10 1,000
20% 15 500
30% 25 100
40% 40 50
50% 70 20
60% 110 5
70% 200 3
80% 500 2
90% 900 1
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