Part I (60 points): Please briefly explain your responses.

1. Some large retail food chains and pharmacy groups have agreed to freeze prices on "socially important necessities" partly in hopes of avoiding bigger government crackdowns on prices allowed because the Russian government wants to fight inflation. A)Do you see any problem with this strategy? B) Include a demand & supply sketch in your answer. C) What is likely to happen to the prices of other goods?

2. Why should you care about the elasticity of demand and elasticity of supply for a good you are considering subsidizing? Include a demand and supply sketch in your explanation.

3. Are public restrooms a public good (or near public good)? Why or why not?

4. Using sunscreen on your skin reduces the risk of death due to melanoma, squamous cell carcinoma, and basal cell carcinoma; skin cancer rates have been rising. Sunscreen also helps prevent painful burns, prevents spotting and blotchiness, reduces skin damage and slows skin aging. Suppose a sunscreen lobby group suggests that since sunscreen clearly provides significant positive externalities your government agency should provide subsidies for sunscreen. Please respond to their argument for funds from your budget.

5. What's the difference between a social insurance program and an income redistribution program? Please give an example of each and explain how the justifications differ.

6. What are some of the major criticisms of the definition of the poverty line used in the U.S.? (8 pts.)

Briefly how does the new supplemental measure of poverty try to do better? (2pts.)