Macro Assignment

When a new product or way of producing a product is introduced it may become so popular that the existing product becomes obsolete. (c) Explain what is meant by the free-rider problem and how a government can help solve the problem. The free-rider problem occurs when a resource, arrive or good is provided and the people that benefit from it do not have to pay for it. The government can help solve the problem by holding a monopoly power over said good, service or resource that can enforce costs on all members Of society. Question 4 (1 0 marks) (a) Give examples of two substitute goods and two complementary goods.

In each case explain why the goods are substitutes or complements. Us busiest: 1. Jug boots and Sorrel boots These would be substitutes because if the price of Jug boots increased people would buy more Sorrel boots instead because they are similar products but the Sorrel boots would be cheaper. . Hershey chocolate bars and Academy chocolate bars These would be substitutes because again, they are very similar products that if the price for one increased then the demand for the other would increase because people would be willing to buy the cheaper chocolate bar than the more expensive chocolate bar.

Compliments: 1. Hotdogs and hotdogs buns These are compliments because when you consume hotdogs most people will also consume hotdogs buns. Therefore, if the demand for hotdogs increased people would still need the buns to go with the hotdogs and the demand for hotdogs buns would also increase. If the price of hotdogs increased then the price of hotdogs buns would decrease because the demand would be lower. 2. Goldfish and fish food These are compliments because goldfish need fish food to survive.

If the demand for goldfish increased then people would need to buy fish food to feed their goldfish and the demand for fish food would also increase. If the price for goldfish increased then the price of fish food would decrease because the demand would be lower. (b) The Federal government is considering passing an excise tax that would increase the price of a pack of cigarettes by $1. 00. What would be the likely effect of this change on the demand and supply cigarettes? What is likely to happen to cigarette prices and the quantity consumed if the tax bill is enacted?