What is the consequence of a positive externality in a market?
PART 1 Short Answer Questions (5 points each) Explain the factors of production and give an example for each one. What is the difference between a normal good and an inferior good? How does this relate to the demand curve? What is the consequence of a positive externality in a market? What is the consequence of a negative externality? Why do those consequences occur? Briefly explain the three tax systems – proportional, progressive and regressive. As you explain each one, also compare the relationship between marginal tax rate and average tax rate as income rises for each one. Project and Analysis Questions (Points listed by each question) 5. Scans of internal organs using magnetic resonance imaging (MRI). These devices are often covered by subsidized health insurance programs such as Medicare. Consider the following table illustrating hypothetical quantities of individual MRI testing procedures demanded and supplied at various prices. Answer the following 3 questions (4 points) Price Quantity Demanded Quantity Supplied $100 100,000 40,000 $300 90,000 60,000 $500 80,000 80,000 $700 70,000 100,000 $900 60,000 120,000 In the absence of a government-subsidized health plan, what is the equilibrium price and quantity of MRI tests? Suppose that the government establishes a health plan guaranteeing that all qualified participants can purchase MRI tests at an effective price to the individual of $100 per test. How many MRI tests are now demanded? Is the result in the market a surplus or shortage? 6. The next 3 parts to this question give changes that have occurred in the watermelon market. For each change in a determinant given, draw in the change that would occur on the supply/demand graph for watermelons that is provided.
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