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Chapter 2: Problem 14

The mayor of Gotham City, worried about a potential epidemic of deadly influenza this winter, asks an economic adviser the following series of questions. Determine whether a question requires the economic adviser to make a positive assessment or a normative assessment. a. How much vaccine will be in stock in the city by the end of November? b. If we offer to pay \(10 \%\) more per dose to the pharmaceutical companies providing the vaccines, will they provide additional doses? c. If there is a shortage of vaccine in the city, whom should we vaccinate first \(-\) the elderly or the very young? (Assume that a person from one group has an equal likelihood of dying from influenza as a person from the other group.) d. If the city charges \(\$ 25\) per shot, how many people will pay? e. If the city charges \(\$ 25\) per shot, it will make a profit of \(\$ 10\) per shot, money that can go to pay for inoculating poor people. Should the city engage in such a scheme?

Short Answer

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Answer: Positive assessment b. If we offer to pay 10% more per dose to the pharmaceutical companies providing the vaccines, will they provide additional doses? Answer: Positive assessment c. If there is a shortage of vaccine in the city, whom should we vaccinate first – the elderly or the very young? Answer: Normative assessment d. If the city charges $25 per shot, how many people will pay? Answer: Positive assessment e. If the city charges $25 per shot, it will make a profit of $10 per shot, money that can go to pay for inoculating poor people. Should the city engage in such a scheme? Answer: Normative assessment

Step by step solution

01

a. How much vaccine will be in stock in the city by the end of November?

This question seeks factual information about the available vaccine supply. Therefore, it requires a positive assessment.
02

b. If we offer to pay \(10 \%\) more per dose to the pharmaceutical companies providing the vaccines, will they provide additional doses?

This question is asking about the effect of increasing payments to pharmaceutical companies on vaccine supply. So, it needs a positive assessment to determine cause-and-effect relationships.
03

c. If there is a shortage of vaccine in the city, whom should we vaccinate first \(-\) the elderly or the very young?

This question involves making a decision based on values and priorities. Thus, it requires a normative assessment.
04

d. If the city charges \(\$ 25\) per shot, how many people will pay?

This question is looking for an estimation of demand based on pricing. Hence, it needs a positive assessment to establish a relationship between price and demand.
05

e. If the city charges \(\$ 25\) per shot, it will make a profit of \(\$ 10\) per shot, money that can go to pay for inoculating poor people. Should the city engage in such a scheme?

This question calls for evaluating the pros and cons of a proposed policy, which involves making a judgment based on values and beliefs. Therefore, it requires a normative assessment.

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Most popular questions from this chapter

Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fish. The accompanying table shows the maximum annual output combinations of potatoes and fish that can be produced. Obviously, given their limited resources and available technology, as they use more of their resources for potato production, there are fewer resources available for catching fish. $$ \begin{array}{c|c|c} \begin{array}{c} \text { Maximum annual } \\\ \text { output options } \end{array} & \begin{array}{c} \text { Quantity of } \\\ \text { potatoes (pounds) } \end{array} & \begin{array}{c} \text { Quantity of } \\\ \text { fish (pounds) } \end{array} \\\ \text { A } & 1,000 & 0 \\\ \text { B } & 800 & 300 \\\ \text { C } & 600 & 500 \\\ \text { D } & 400 & 600 \\\ \text { E } & 200 & 650 \\\ \text { F } & 0 & 675 \end{array} $$ a. Draw a production possibility frontier with potatoes on the horizontal axis and fish on the vertical axis illustrating these options, showing points \(A-F\) b. Can Atlantis produce 500 pounds of fish and 800 pounds of potatoes? Explain. Where would this point lie relative to the production possibility frontier? c. What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds? d. What is the opportunity cost of increasing the annual output of potatoes from 200 to 400 pounds? e. Can you explain why the answers to parts \(\mathrm{c}\) and \(\mathrm{d}\) are not the same? What does this imply about the slope of the production possibility frontier?

An economist might say that colleges and universities "produce" education, using faculty members and students as inputs. According to this line of reasoning, education is then "consumed" by households. Construct a circular- flow diagram to represent the sector of the economy devoted to college education: colleges and universities represent firms, and households both consume education and provide faculty and students to universities. What are the relevant markets in this diagram? What is being bought and sold in each direction? What would happen in the diagram if the government decided to subsidize \(50 \%\) of all college students' tuition?

Peter Pundit, an economics reporter, states that the European Union (EU) is increasing its productivity very rapidly in all industries. He claims that this productivity advance is so rapid that output from the \(\mathrm{EU}\) in these industries will soon exceed that of the United States and, as a result, the United States will no longer benefit from trade with the EU. a. Do you think Peter Pundit is correct or not? If not, what do you think is the source of his mistake? b. If the \(\mathrm{EU}\) and the United States continue to trade, what do you think will characterize the goods that the EU sells to the United States and the goods that the United States sells to the EU?

The inhabitants of the fictional economy of Atlantis use money in the form of cowry shells. Draw a circular-flow diagram showing households and firms. Firms produce potatoes and fish, and households buy potatoes and fish. Households also provide the land and labor to firms. Identify where in the flows of cowry shells or physical things (goods and services, or resources) each of the following impacts would occur. Describe how this impact spreads around the circle. a. A devastating hurricane floods many of the potato fields. b. A very productive fishing season yields a very large number of fish caught. c. The inhabitants of Atlantis discover Shakira and spend several days a month at dancing festivals.

Evaluate the following statement: "It is easier to build an economic model that accurately reflects events that have already occurred than to build an economic model to forecast future events." Do you think this is true or not? Why? What does this imply about the difficulties of building good economic models?
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