Problem set - supply and demand , price elasticity of demand

Problem set (supply and demand , price elasticity of demand, economics rationale for government intervention...

This exam is open book and open notes. Discussion about the answers is not permitted. Answer each question fully and use graphs to help explain the answers, where appropriate. There is not always one correct answer. The quality of your answer depends on the strength of your explanation and on your ability to apply economic concepts to these problems.

1.You have accepted a new position as the chief economics advisor to the Postmaster General. The U.S. Postal Service is under pressure from Congress to increase revenues so that it can fully recover costs associated with its first-class postage.

The Postmaster General is scheduled to testify before Congress and asks you to write the prepared statement. Specifically, the Postmaster General is interested in the following issues:

A.How might a rate increase affect the quantity of mail and total revenues collected by the Postal Service? Consider the law of demand and price elasticity of demand in addressing this issue.

B.How would consumer surplus be affected by a rate increase?

2.You accept a position as economics advisor to the Director of the Office of Management and Budget. You are asked to evaluate government programs to help determine whether the government should continue to fund the programs. Discuss the economics rationale for government intervention, if appropriate, based on concepts discussed in class.

A.A program to increase the number of teachers in the United States;

B.Strict enforcement of anti-pollution laws; and

C.A program to subsidize wheat production.

3.A major hotel chain expects travel to increase during the summer of 2024. At the same time, hotel operation costs are expected to increase due to rising energy costs. Using demand and supply analysis to develop your response, how would you expect these two events to affect the travel market during the summer of 2024, including equilibrium quantity and price?