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1)Government consider four policies: 1 1

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1)Government consider four policies: 1 1. A minimum legal price at $35. 2- A maximum quantity sold at 25 cigarettes per day. 3- A $4 tax on selling 4- A $2 tax on consumption e. Which policy causes the smallest quantity sold? f. Which policy causes the smallest deadweight loss? g. Which policy is better for consumers in term of consumer surplus? h. Which policy is better for producers in term of producer surplus? i. Which policy causes the highest revenue for the government? j. *Which policy do you suggest?

2)

Choose a program or service that is provided by an international organization.

1. Tell us what program or service you chose.

2. Does your example fit the definition of a rival good? Explain why or why not.

3. Does your example fit the definition of an excludable good? Explain why or why not.

3)

Katie likes to paint and sit in the sun. Her utility function is U(P,S)=3PS + 6P, where P is the number of paint brushes and S is the number of straw hats. The price of a paint brush is $I and the price of a straw hat is $5. Katie has $50 to spend on paint brushes and straw hats.

1. State the objective function
2. State the constraint
3. Solve for MU_P and MU_S and state if utility function exhibits diminishing MU for each good diminishing MU
4. Interpret the value of your MU_P and MU_S at P=2 and S=1
5. Solve for MRS_PS and state if the utility function exhibits diminishing MRS
6. Interpret the value of your MRS_PS if P=2 and S=1
7. Write down the optimality condition. Express it using the utility function and prices given above.
8. What is the economic meaning of the optimality condition applied specifically to the goods straw hats and paintbrushes. Equality of slopes of IC and BL are not acceptable answers- these are not economically relevant terms
9. Solve for optimal level of straw hats and paintbrushes.
10. Draw your optimal solution by drawing an IC (convex one) and BL, and make sure you label your optimal levels of B and C as well as the intercepts of your BL.