Category: Economics

Healthcare reforms enacted in 2010 expressly allow insurance companies to:
none of the choices.
spend less than 80% of premiums on benefits and quality improvement.
impose lifetime and annual limits on care.
deny coverage for preexisting conditions.

Section 4.1.2: Complementary and Substitute Goods – DemandFunctionDefinitions
The demand for some pairs of goods have a relationship, where the quantity demanded for oneproduct depends somehow on the prices for both.
Two goods are complementary if an increase in the price of either decreases the demand forboth. For example, the demand for cars depends on both the price for cars and the price ofgasoline.
Two goods are substitutes if an increase in the price of one increases the demand for the other. For example, the demand for Brand A depends on its price and also on the price of its maincompetitor.
Example
The demand functions for two products are given below. p1,p2,q1, and q2 are the prices (indollars) and quantities for products 1 and 2.
q1=1600-3p1-4p2
q2=1600-2p1-p2
a. What is the quantity demanded for each product when the price for Product 1 is $30 peritem and the price for Product 2 is $40 per item?
b. Are these two products complementary goods or substitute goods?

Optimal Policy ChoiceThe government should choose the production subsidy because:It directly targets the market failure (insufficient domestic production)It avoids distorting consumption decisionsIt creates less deadweight loss than a tariffIt more efficiently achieves the goal of increased domestic productionGuiding PrincipleThe principle that should guide the government’s decision is the Targeting Principle (also known as the Specificity Principle or Theory of Second Best).Targeting Principle: Policy interventions should target market failures as directly as possible to minimize unintended distortions. The most efficient policy instrument is the one that acts most directly on the source of the market failure.In this case, since the market failure is insufficient domestic production (due to positive externalities not captured by producers), a production subsidy directly addresses this issue without creating additional distortions in consumption, making it superior to a tariff.

During the 2008 financial crisis and the COVID-19 recession, a lot of financial managers and business leaders were heavily criticized—and for good reason. In 2008, big banks like Lehman Brothers made risky financial choices that helped cause the whole economy to crash. Even though their decisions hurt millions of people, some of their top executives still got huge bonuses and walked away with a lot of money. That seemed really unfair to regular people who lost their jobs and homes. Then, during the COVID-19 crisis, some large companies took money from government programs that were meant to help small businesses survive. These big companies didn’t really need the help, but they took it anyway, which made people angry. These situations show that a lot of the criticism is fair. Many of these leaders acted selfishly, made bad choices, and didn’t seem to care how their actions hurt others. When people in charge behave like that, it’s hard to trust them, especially during tough times.

A sobering census report: Americans’ meager income gains
The Census Bureau reported that median household income rose 0.7 percent in 2006 to $48,210, but it was still about $1,000 less than in 2000, before the start of the last recession. Households living in poverty fell to 12.3 percent from 12.6 percent in 2005. But in 2006, 36.5 million Americans were living in poverty — 5 million more than in 2000, when the poverty rate was 11.3 percent.
Source:
The New York Times, August 29, 2007
During 2000, 2005, and 2006, _______.
income inequality decreased at the upper end of the income distribution
at the lower end of the income distribution, income inequality increased between 2000 and 2005 and then decreased slightly during 2006
income inequality increased in all quintiles
income inequality decreased in all quintiles

In Ezra Klein’s and Derek Thompson’s book Abundance, the authors explain thatThere is an idea in manufacturing history known as Wright’s law, which says that some things get cheaper as we learn to build more. The theory is named after Theodore Wright, an American aeronautical engineer who served as vice chairman of NASA’s predecessor, the National Advisory Committee. From aeronautics in the 1930s, Wright recognized that the cost of building alrplanes had declined with an eerie consistency since World War I: for every quadrupling of total aircraft production, unit costs consistently fell by about one-third. In 1936, Wright proposed that some products enjoy a kind of virtuous cycle of building and learning. (180, footnotes omitted).
Part 1 ( 3 points):
What concept, discussed in this unit, describes the relationship stated above?
Part 2 ( 6 points):
Using a model we’ve discussed in this unit, draw a model that shows the relationship between cost and quantity described in the excerpt.

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