1. Suppose that a recent survey shows an increase in drug use by young people. In the ensuing debate, two hypotheses are proposed:
(1) Reduced police efforts have increased the availability of drugs on the street.
(2) Funding cutbacks in drug education efforts have decreased awareness of the dangers of drug addiction.
How would each of these hypotheses affect the supply and/or demand for illicit drugs? How could information on what has happened to the price of these drugs in recent months help us to distinguish between these explanations?
2. In October of 2012 Hurricane Sandy devastated sections of the New Jersey shore, causing an estimated $30 billion in losses. Over two million households in the state lost power in the storm, 346,000 homes were damaged or destroyed, and 37 people were killed.
Following this event, there was a huge increase in demand for emergency provisions such as gasoline, car services, flashlights, batteries, and more. As a result, the price of these emergency provisions increased dramatically. New Jersey Governor Chris Christie warned New Jersey businesses that price gouging was illegal and would be met with an extremely harsh penalty.
You are one of Chris Christie’s economic advisors. A number of businesses have been brought up on charges of price gouging following Hurricane Sandy (a table of examples of prices changes is provided below). You must decide whether these business are guilty of price gouging, or are just following the laws of supply and demand. You must then defend your decision. What does this example teach us about the market system?
Cite two cases where the Jurists have used CoaseTheorem.
4. Why is it efficient to limit the duration of patents and copyrights, whereas real property rights endure almost forever?
5. The Truth-In-Lending Act (1968) requires the uniform disclosure of the interest rate to borrowers in a readily intelligible form. Assume that before the Act, there was uncertainty about the true level of interest rates among borrowers, but after the act the uncertainty was reduced. What effect on the amount of borrowing would you predict from the passage of the Act? Would there be disproportionate effects on the rich and the poor? Why? Does the act increase the marginal cost of lenders? Does it reduce the profits of lenders?
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