1. Policymakers want to reduce smoking because it leads to various serios illnesses. They can attempt to achieve this target by decreasing the demand curve for cigarettes and other tobacco products (for data on the economic cost estimates associated with smoking, see https://www.cdc.gov/tobacco/data_statistics/fact_sheets/economics/econ_facts/index.htm). Please suggest one policy that may decrease demand for smoking in your view. Another option for policymakers to achieve this target is by increasing the price of cigarettes (by imposing higher taxes on the manufacture of cigarettes), which encourages smokers to lower the number of cigarettes they smoke, indicating a movement along the same demand curve where the quantity of cigarettes drops. Opponents of taxes on cigarettes argue that a higher price of cigarettes raises demand for marijuana, because tobacco and marijuana are substitutes. Other experts on substance abuse argue that tobacco and marijuana are complements (viewing tobacco as a "gateway drug" that may lead young people to experiment with other harmful substances), and that a higher price of cigarettes reduces demand for marijuana. In your view, do you think tobacco and marijuana are more likely to be substitutes or complements? Why?

2. In the context of the supply and demand framework, if a city wants to reduce traffic congestion (demand for auto trips), it may lower the prices of substitutes or raise the prices of complements, and that the demand curve for traffic congestion shifts to the left. Please give at least one 2 example for lowering the price of a substitute or increasing the price of a complement in this case.

3. Do you recommend imposing a binding price ceiling on gasoline when gasoline price increases substantially (a price ceiling on gasoline was last imposed in the U.S. in 1970s)? Please explain your rationale.

4. The current federal minimum wage is $7.25 per hour. Are you in favor of raising the federal minimum wage to $15 by 2025 (please explain your view)? What is the minimum wage in a state of your selection in the U.S.?

5. As a matter of public policy, people are not allowed to sell their organs. In essence, this means that there is a price ceiling on organs of $0. This has led to a shortage of organs. Some argue that the creation of a market for organs would lead to a more efficient allocation of resources, but critics worry about the fairness of a market system for organs. Economic experts were asked whether they agreed with the creation of a trial market that allows payment for human kidneys to extend the lives of those with kidney disease. 57% of the experts agreed, while 16% disagreed and 27% were uncertain. What is your opinion (based on your study of price controls and consumer/producer surplus, and own judgement)? What would happen to efficiency of the market if people were allowed to sell/buy kidneys? Would the outcome be fair in this case? Please provide arguments to support your view.

6. Even if markets are generally a good way to organize economic activities, the role of government is still critical to ensure that market power works well, and that the price mechanism gives the right signals to buyers and to sellers to deliver efficient outcome. For instance, it's vital for the government to ensure that property rights (ability of people to exercise authority over the resources they own) exist and well defined. What happens when property rights do not exist or are not well defined? You may consider providing a specific example/story of a country with weak rule of law (or high level of corruption) and its adverse impact on incentives, businesses, market efficiency, and allocation of resources.

7. Assume that we are developing a managerial catalog that includes general recommendations to improve managerial decision making and outcome. Based on your study of this module/chapter, what is your recommendation/advice to managers to include in this catalog?

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Tobacco and Marijuana as Substitutes or Complements In the context of tobacco and marijuana the debate on whether they are substitutes or complements is multifaceted Some experts view them as substitu... View the full answer