Need Help with these Economic Questions only need help with problems #4-10 so 6 problems total. Due Date is in 3 hours.

1.According to recent news reports, some firms in Europe have been selling meat labeled “beef” which is actually horse meat. Assume that consumers can sue for damages under the civil law. Now consider what arguments an economist would make in order to support legislation to criminalize selling of mislabeled beef.

2. Consider the way in which Anderson would measure the costs of the recent French (Societe General) bank fraud case in which a trader 7.14 billion euros in unauthorized trading. The trader is to be charged, tried, and may well be convicted and sentenced to serve some time in jail. For each of the costs listed below indicate whether Anderson would include them as economic costs of this crime?

2a. the 7.14 billion euro loss

2b. the cost of prosecuting the trader

2c. costs to other banks due to lost reputation

2d. lost earnings by the trader while in jail

2e. the costs of incarcerating the trader

3. In the US individual are presumed innocent until convicted. Therefore, most suspects who are arrested are released during the pretrial period. Studies have shown that individuals who are released on bail are more likely to fail to appear for trial and to be arrested for other crimes than individuals who are released with no bail (this is called being released on personal recognizance) Based on this, what can you conclude about the system for setting bail and the desirability of releasing more individuals awaiting trial on personal recognizance? Explain.

4a. Figure 1 on the right shows Bad Betty’s Utility Figure 1

utility function, relating her income to her

total utility. Betty is currently employed

as a bank teller earning $50,000 per

year. She is considering quitting

her job to be a contestant on the TV

program American Idle. If she wins,

her income will be $100,000 per year.

But, if she loses the contest, she will have to

take a job singing outside a Metro station and

earn only $10,000 per year. Assume that

Betty has a probability of 0.3 of winning on

American Idle. What will she do?

Show your work on the diagram. 10 20 30 40 50 60 70 80 90 100

Income in thousands of $

4b. At what level of p would Betty be indifferent between keeping her job and trying out for American Idle? Show your work!

5a. Green Lizard Automobile Insurance Co. claims survey results show that the average customer who switches coverage from another company to the Lizard saves $400 on their coverage. What does this imply about Green Lizard’s prices compared to other companies offering automobile insurance? Are there any econometric problems with this inference?

5b. Progressive Auto Insurance gained significant market share away from Green Lizard and State Farm Insurance by targeting drivers with good credit ratings. It appears that drivers with high credit scores are less likely to cause collisions. Does this mean that paying bills on time improves driving skills? How would you explain the association of driving record and credit history given that formal estimates of collision claims records show that in the equation.

Ci = α + βSi + γIi + ΦEi + Gi + σLi + εi

Where C is number of collisions or claims, S is credit score, I is income, E is education, G is gender, L is location and ε is and error term. The estimate of β is negative and could be interpreted as in indication that high credit score lowers the number of claims and collisions. What other possibility might account for observing β < 0?

6a. During rush hour traffic jams are created Cost or Benefit per Offense

when automobiles pull into an intersection Figure 2

and when there is no room for them to proceed

so that they become stuck in the intersection.

When the light changes, traffic in the other

Direction is blocked. Motorists often honk,

yell, and otherwise remonstrate against such

selfish drivers thereby imposing a cost on

them for pulling into the intersection when the

way ahead is blocked. The diagram on the

right has a solid curve, labeled “B”, giving the

benefits to pulling into the intesection even

when it is jammed and another dashed curve,

labeled “C” giving the costs imposed by other C

motorists on those who behave in this manner B

If the current level of offending is at O*, what O*

do you expect to happen in this intersection over time?

6b. It might be possible to raise the cost of offending temporarily by stationing a police officer near the intersection. What difference would this make in the short run and what would happen after the officer was removed?

7. Assume that Tanya can earn $20 per hour as a professional kick boxer. Alternatively she can sell drugs and earn $60 per hour. If she is caught selling drugs and sanctioned, she must forfeit all her drug earnings and there is a 50% chance that she will be caught and sanctioned. Tanya has 40 hours per week to spend working - i.e. 40 hours to allocate between kick boxing and drug selling. If Tanya is risk neutral, you predict that she will spend _______ hours kick boxing and ________ hours selling drugs.

8. Figure 4 shows the demand for meth in East $/ounce Figure 4

Egg. Current sanctions are shown as pcs on the 12

Figure. This implies that the current price of 11

Meth is $________per ounce and _______ 10

ounces are sold per week. Total revenue of 9

meth producers is $___________ per week. 8

Now imagine that East Egg doubles the 7 S+pcs

sanction for meth production and sale so 6

it goes from s to 2s. You anticipate that the 5 S

price will be $_______ per ounce and total 4

revenue of meth producers will be 3

$________________ per week. What does this 2 D

suggest about the wisdom of doubling the sanction 1

for meth? 10 20 30 40 50

ounces per week

9. For each of the factors listed below, indicate whether the Clotfelter found it to be associated with an increasing, decreasing, or constant percentage of underreported income (i.e. was underreporting as a percentage of adjusted gross income higher, lower, or unchanged) AND note if this is consistent with economic theory of crime as you understand it.

a. Higher marginal tax rate

b. Higher income

c. Greater age

d. Marital Status

10a. Imagine estimating the following single equation model of country corruption:

C = α + β GDP + π Education + σ Press Freedom + τ Regulation + γ Imports/GDP + ϵ

What signs would you expect to get for:

β ____________________ π _______________________σ _________________

τ_____________________ γ _______________________

10b. What estimation problems might you need to worry about in interpreting each of these coefficients? That is which coefficients might be subject to estimation bias and what is the nature of the likely bias?

β __________________________________________________________

π __________________________________________________________

11. What were the African witch killings? When did they occur? What mechanism design by economists was used to eliminate them?

12. Many people think economics believe that people commit crimes because “crime pays” better than legal work. But economic theory suggests that some people will commit crimes even when expected return is lower than legal work. Please explain when this occurs and why.

13. Statistical evidence shows that arrested individuals released on bail are more likely to fail to appear for trial than individuals released without bail. Some suggest this is evidence that bail should be eliminated. What might an economist say about this evidence and bail reform?

14. Consider policing Faganville where risk-neutral individuals can either work for $30,000 per year or participate in crime by shoplifting at 7-9 stores which results in gains (to shoplifters and losses to store owners) of $50,000 per year. Assume that store owners can hire protection for $20,000 per year that reduces shoplifting losses to $20,000, i.e. if store owners hire protection, shoplifters only steal $20,000 worth of merchandise with the same level of effort. Assume further that store owners are risk neutral and care only about their net losses. Set this up as a game. Write the payoff matrix, identify the cooperative equilibrium, and discuss the existence of a dominant strategy or Nash equilibrium in pure or mixed strategies.

Cooperative equilibrium = ___________________________________

Faganville Residents

Shoplift Work

No Security \ \

Shopowners

Hire Security \ \