1. Suppose the government is concerned about gas shortages and
so places a quota on gas purchases. Before the quota, consumers
are able to purchase as much as 12 gallons of gas per week. The
quota reduces this amount to no more than 10 gallons per week.
How are (typical) consumers affected by this quota?
2. After June 1st, Louisville-area (Jefferson County) gas stations
are required to sell reformulated gasoline, which is about 20 cents
more expensive than non-reformulated gas. Gas stations in
neighboring Oldham, Shelby and Bullitt Counties are not required to
sell this gas. How does this regulation affect consumers who live on
the border of Jefferson and Shelby County?
3. Assume that a local politician is running for office.
To appease soccer Moms (an important voting block), this politician
creates a program for Louisville-area soccer Moms, allowing them to
receive a monthly gas voucher that's good for 20 gallons of (free) gas.
Assume further that soccer Moms receive about $200 in monthly income,
that gas prices are $2 per gallon and that a price index for "all
other goods" is equal to $4.
Consider the following two groups of soccer Moms (let G = quantity of gas purchased and A = quantity of all other goods purchased).
Soccer Moms in group 1 have this utility function: U = G0.5A0.5
Soccer Moms in group 2 have this utility function: U = G0.1A0.9
Note that receiving a 20 gallon voucher is similar to obtaining a $40 increase in income. With this in mind, compare how this voucher program affects each of these two groups, and then determine whether each group prefers the voucher program to an alternative program that just provides a monthly $40 check to soccer Moms.