Critical thinking practice before exam

Instructions:

Answer all questions in detail, using graphs where applicable. Your answers should demonstrate your understanding of microeconomic principles and your ability to critically analyze the issues. The assignment should not exceed four pages. Points are allocated per question.

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$1.$ Tariffs and Protectionism $(30$ points$)$

The U$.$S$.$ has implemented tariffs on various imported goods, citing the need to protect domestic industries. Assume the U$.$S$.$ imposes a $25\%$ tariff on imported steel.

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A$.$ Using the supply and demand model, explain how a $25\%$ tariff on steel would affect the equilibrium price and quantity in the domestic steel market. Illustrate your answer with a graph and a detailed explanation. $(10$ pts$)$

B$.$ Discuss the short$-$term and long$-$term effects of the tariff on:

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Domestic steel producers

Domestic consumers of steel $($e$.$g$.,$ the construction industry$)$

Foreign steel producers $(10$ pts$)$

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C$.$ Explain how tariffs might lead to unintended consequences, such as inefficiencies in resource allocation or retaliation from trading partners. Provide an example. $(10$ pts$)$

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$2.$ Climate Economics and Carbon Markets $(30$ points$)$

The U$.$S$.$ is considering implementing a national carbon market as part of its climate policy.

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A$.$ Explain how a carbon market works using a cap$-$and$-$trade system. Discuss the roles of permits and how firms decide whether to buy, sell, or hold permits. Use a graph to show the potential impact on firms with high and low emissions. $(10$ pts$)$

B$.$ Identify and discuss two potential externalities $($one positive and one negative$)$ that might arise from implementing a carbon market. $(10$ pts$)$

C$.$ Evaluate the impact of a carbon market on different stakeholders:

High$-$emission industries $($e$.$g$.,$ coal power plants$)$

Low$-$emission industries $($e$.$g$.,$ renewable energy producers$)$

Households $($considering energy prices and employment$)(10$ pts$)$

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$3.$ Inflation and Consumer Behavior $(20$ points$)$

Inflation rates in the U$.$S$.$ have recently surged, impacting prices of goods and services.

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A$.$ Using the concept of elasticity, explain how rising inflation might affect the demand for:

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Necessities $($e$.$g$.,$ groceries, gas$)$

Luxuries $($e$.$g$.,$ vacations, dining out$)(10$ pts$)$

B$.$ Suppose the government implements price controls on staple goods to combat inflation. Analyze the potential effects on the market for these goods, considering shortages, surpluses, and black markets. Provide a graph to support your answer. $(10$ pts$)$

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$4.$ General Critical Thinking on Policy Implications $(20$ points$)$

Choose one of the three themes above $($tariffs$,$ climate economics, or inflation$)$ and critically evaluate its broader implications on economic inequality in the U$.$S$.($ Note for expert$*$ do whichever you feel is easy and can explain$)$

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A$.$ Explain how the chosen theme could exacerbate or reduce economic inequality, providing specific examples. $(10$ pts$)$

B$.$ Propose one policy recommendation to address these implications and explain its potential benefits and challenges. $(10$ pts$)$

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Total: $100$ points