1.) U.S. cigarette makers face enormous punitive damage penalties after losing a series of class-action lawsuits that heaped penalties amounting to several hundred billion dollars on the tobacco industry. In spite of the huge penalties, The Wall Street Journal reported, “The damage (to cigarette makers) is generally under control. ”What action do you suppose the cigarette companies took to avoid bankruptcy? Why did this action succeed? 2.) Situation: “Suppose a hurricane hits Miami and destroys 20% of the apartment stock.” What is the microeconomics in this situation? Answer: See the syllabus for an example. Submit Microeconomic Concept(s) 1. 3.) Business Week, in an article dealing with management, wrote, “When he took over the furniture factory three years ago … [the manager] realized almost immediately that it was throwing away at least $100,000 a year worth of wood scrap. Within a few weeks, he set up a task force of managers and workers to deal with the problem. And within a few months, they reduced the amount of scrap to $7,000 worth [per year].” Was this necessarily an economically efficient move? Explain your answer. 4.) Ross Perot added his memorable “insight” to the debate over the North American Free Trade Agreement (NAFTA) when he warned that passage of NAFTA would create a “giant sucking sound” as U.S. employers shipped jobs to Mexico, where wages are lower than wages in the United States. As it turned out, many U.S. firms chose not to produce in Mexico despite the much lower wages there. Explain why it may not be economically efficient to move production to foreign countries, even ones with substantially lower wages.
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