Economics

  ‘I (one paragraph) Recently there has been discussion in the news about taxing junk food (soft drinks, for example) in an effort to reduce the incidence of obesity in the US. Do you think the demand for junk food is elastic or inelastic with respect to price. Based on your knowledge ofthe price elasticity of demand, do you think the deadweight loss ofa soda/junk-food tax would be relatively large or relatively small? Why? Do you think taxing junk food would be a good idea? Based on your analysis, would it really help reduce the number of obese people in the United States? Explain. 2 (one paragraph) Think ofthree goods for which the demand is inelastic with respect to price. Do these goods ever go on sale? Does understanding the relationship between elasticity and total revenue help you understand why some goods go on sale and others don't? Share your thoughts. 3 (one paragraph) Suppose that as a consumer you have $3£i per month to spend on munchies-either pizzas, which cost $6 each, or Twinkies, which cost $li each. Create a set of marginal utility tables for each product, like the ones below. Remember that they must show diminishing marginal utility as more of each product is consumed. Create the corresponding set of total utility tables for each product. Graph the budget constraint with Pizzas on the horizontal axis and Twinkies on the vertical axis. What are the intercepts? Can you express the budget constraint as an algebraic equation for a line? ofPizzas ‘I 2 3 a 5 6 7 Marginal Utility Total Utility ofTwinkies ‘I 2 3 a 5 6 7 Marginal Utility Total Utility Should you purchase a Twinkie first or a Pizza first to get the “biggest bang for the buck"? How can you tell? What should you purchase second, third, etc. untilyou exhaust your budget? Confirm that the combination of Twinkies and Pizzas you end up with will maximize your total utility by computing the total utility from other points on the budget line and comparing them to what you chose.