In the city of West Baltimore, demand for heroin (an illegal drug) is given by P...

   

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In the city of West Baltimore, demand for heroin (an illegal drug) is given by P = 200-80. Heroin is supplied by the Barksdale gang with supply function P = x + 2Q5, where a is the number of police officers deployed in West Baltimore. Each heroin sale is a crime and is associated with social harm h to citizens uninvolved in the drug trade (i.e., there is a negative externality with MD = h). 1. When there are no police officers in West Baltimore (x = 0), what is the equilibrium price and quantity in the heroin market? (2 points) 2. When there are 20 police officers in West Baltimore (r = 20), what is the equilibrium price and quantity in the heroin market? (2 points) 3. Write the equilibrium quantity in the heroin market as a function of the number of police officers, z. Simplify your answer as much as possible. (2 points) 4. Use your answers above to show explain that A (2 points) = 5. Does the number of heroin transactions increase or decrease with the number of police officers? Briefly comment on whether this makes sense, citing a model from class. (1-3 sentences) (2 points) 6. Does the effect of police on the number of heroin transactions seems small or large? Why do you think that is? (1-3 sentences) (3 points) 7. The mayor of West Baltimore, Mayor Royce, needs to decide how many police officers to deploy. Suppose the following: (i) Mayor Royce does not care at all about the welfare of buyers and sellers in the drug market; in other words, the mayor cares only about reducing harm h; (ii) Social harm h = 100; (3) the marginal cost of deploying a police officers is given by MC(x) = x. How many police officers should Mayor Royce deploy? (3 points) 8. Given Mayor Royce's choice of optimal policing, what is the equilibrium quantity in West Baltimore's heroin market? (2 points) 9. Suppose instead that Mayor Royce did care about the welfare of buyers and sellers in the drug market, do you think the optimal r would be higher or lower? Explain your reasoning intuitively. (2-3 sentences) (3 points). 10. In the neighboring city of East Baltimore, demand for heroin is also given by P = 200- 8Q and each heroine sale is a crime with social harm h = 100 to citizens uninvolved in the drug trade. But in East Baltimore, heroin is supplied by Proposition Joe with supply function P = 2x + 2Q5, where x is the number of police officers deployed in East Baltimore. Using the same assumptions as in part (7) above, how many police officers should the mayor of East Baltimore, Mayor Carcetti, deploy in East Baltimore? (3 points) 11. Relative to West Baltimore, is the optimal police deployment higher or lower in East Baltimore? Explain intuitively why this makes sense. (1 sentence) (3 points). 12. Returning to West Baltimore, suppose that Mayor Royce loses the next election and is replaced by the progressive Mayor Colvin. Mayor Colvin's plan is to legalize heroin and impose tax of size t on each heroin purchase. How big should t be? (2 points) 13. With Mayor Colvin's tax in place, what is the equilibrium quantity in the heroin market? (2 points) 14. Between Mayor Royce and Mayor Colvin, whose policy is better? Comment on any and all tradeoffs that you think are relevant and clearly justify your reasoning. (2-4 sentences) (4 points). In the city of West Baltimore, demand for heroin (an illegal drug) is given by P = 200-80. Heroin is supplied by the Barksdale gang with supply function P = x + 2Q5, where a is the number of police officers deployed in West Baltimore. Each heroin sale is a crime and is associated with social harm h to citizens uninvolved in the drug trade (i.e., there is a negative externality with MD = h). 1. When there are no police officers in West Baltimore (x = 0), what is the equilibrium price and quantity in the heroin market? (2 points) 2. When there are 20 police officers in West Baltimore (r = 20), what is the equilibrium price and quantity in the heroin market? (2 points) 3. Write the equilibrium quantity in the heroin market as a function of the number of police officers, z. Simplify your answer as much as possible. (2 points) 4. Use your answers above to show explain that A (2 points) = 5. Does the number of heroin transactions increase or decrease with the number of police officers? Briefly comment on whether this makes sense, citing a model from class. (1-3 sentences) (2 points) 6. Does the effect of police on the number of heroin transactions seems small or large? Why do you think that is? (1-3 sentences) (3 points) 7. The mayor of West Baltimore, Mayor Royce, needs to decide how many police officers to deploy. Suppose the following: (i) Mayor Royce does not care at all about the welfare of buyers and sellers in the drug market; in other words, the mayor cares only about reducing harm h; (ii) Social harm h = 100; (3) the marginal cost of deploying a police officers is given by MC(x) = x. How many police officers should Mayor Royce deploy? (3 points) 8. Given Mayor Royce's choice of optimal policing, what is the equilibrium quantity in West Baltimore's heroin market? (2 points) 9. Suppose instead that Mayor Royce did care about the welfare of buyers and sellers in the drug market, do you think the optimal r would be higher or lower? Explain your reasoning intuitively. (2-3 sentences) (3 points). 10. In the neighboring city of East Baltimore, demand for heroin is also given by P = 200- 8Q and each heroine sale is a crime with social harm h = 100 to citizens uninvolved in the drug trade. But in East Baltimore, heroin is supplied by Proposition Joe with supply function P = 2x + 2Q5, where x is the number of police officers deployed in East Baltimore. Using the same assumptions as in part (7) above, how many police officers should the mayor of East Baltimore, Mayor Carcetti, deploy in East Baltimore? (3 points) 11. Relative to West Baltimore, is the optimal police deployment higher or lower in East Baltimore? Explain intuitively why this makes sense. (1 sentence) (3 points). 12. Returning to West Baltimore, suppose that Mayor Royce loses the next election and is replaced by the progressive Mayor Colvin. Mayor Colvin's plan is to legalize heroin and impose tax of size t on each heroin purchase. How big should t be? (2 points) 13. With Mayor Colvin's tax in place, what is the equilibrium quantity in the heroin market? (2 points) 14. Between Mayor Royce and Mayor Colvin, whose policy is better? Comment on any and all tradeoffs that you think are relevant and clearly justify your reasoning. (2-4 sentences) (4 points).

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1 When there are no police officers in West Baltimore x 0 the equilibrium price and quantity in the heroin market is P 200 and QD 25 2 When there are ... View the full answer