Bill, the butcher, is upset because the government plans to tax beef $.10 a pound. “I hate paying taxes,” he says. “Because of this, I’m raising all my beef prices by $.10 a pound. The consumers will bear this burden, not me.” Do you see anything wrong with this way of thinking? Explain.

Answer every question in a brief essay form.

1. A department store buys a wool coat for $120 and sets its retail price at $300. The coat costs $85 to produce. When the coat doesn’t sell, the store marks the price down to $200, then $100, and finally $70. At $70, Amy buys the coat. What was the coat’s true value? Why?
2. A popular video program used to teach economics to primary school children defines
opportunity cost as “what you give up to get something.” In light of your understanding of
opportunity cost, how would you modify this definition?
3. Jim values his car at $2,000, and Kelly values it at $5,000. Can value be created in this situation? How? Suppose Jim refuses to sell for less than $6,000. Is value destroyed? Why or why not?
4. The City of Greenville needs to raise revenue. Alderman Black has proposed a $10 tax on red cars in the city, currently numbering 2,000. Mayor White, who wants more than $20,000 in revenue, proposes taxing these cars at $100 each. Councilwoman Bluestone goes even farther, suggesting a $1,000 per red car tax, arguing that her proposal will raise $2 million. If maximizing tax revenue is the only consideration, which proposal should pass? Why? (20 points)
5. Is education a public good? Focus on whether it meets the two criteria for being a public good. (20 points)
6. Susan says, “If the price of wool coats goes up, suppliers will offer more of the coats for sale.” Brad replies, “It takes three months to harvest wool and employ all the steps necessary to produce a wool coat. Quantity supplied cannot possibly increase for three months.” Is Brad correct? Why or why not?
7. Bill, the butcher, is upset because the government plans to tax beef $.10 a pound. “I hate paying taxes,” he says. “Because of this, I’m raising all my beef prices by $.10 a pound. The consumers will bear this burden, not me.” Do you see anything wrong with this way of thinking? Explain.
8. After spending $400,000 to build your dream home, you recently discovered that after less than one year the foundation is cracking. Further investigation reveals that the contractor used substandard concrete. Is there a role for the public sector in this situation?
9. Sparkle-Bright toothpaste is a new product that advertises it will give you fresh breath and
shiny, white teeth. You buy a tube for $1.99, and after brushing, you have both bad breath and dull teeth. Is there a role for the public sector in this situation?
10. Anne has just purchased a new house in a lovely neighborhood. Her neighbors are friendly and even brought her house-warming gifts. Anne, however, has a problem. Her neighbors have cats, and Anne hates cats. Even though the city has a law requiring all outdoor pets to be on a leash, her neighbors ignore it, and the cats roam all over Anne’s property. How would an economist describe this situation? Is there anything Anne can do?

Textbook: Gwartney, J. D., Stroup, R. L., Sobel, R. S., & Macpherson, D. A. (2018). Economics: Private and public choice (16th ed.). Boston, MA: Cengage Learning.
ISBN-13: 9781305506725

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