Homework 4: Due Tuesday, Feb 22 1. An addict suffers a loss of 20 from not consuming drugs, and a gain of *30 from consuming them. What is the most the addict will pay to get the drugs? 2. In experiment 4.1b, a seller pays *10 and gets two units of drugs. How many units will a seller supply at a price of *6? At a price of *4? 3. In experiment 4.1b, did addicts pay more than casual users? Why? 4. How does the confiscation in experiment 4.3 (where the confiscated units are destroyed) compare to a tax on sellers? 5. For experiments 4.3 and 4.4, compute the price necessary for sellers to break even. Don't forget the fine! That is, do sellers make a profit at a price of 20*? 25*? 30*? Remember that buyers do not pay the seller when the unit is confiscated. 6. When half the sold units are confiscated, will recreational users be able to purchase? Why or why not? (use answer fron problem 2) 7. In equilibrium, with police confiscating half the units, how many units will be offered by sellers? You can phrase your answer in terms of the number of addicts and the number of recreational users, or use the actual number from your group. In particular, will all sellers attempt to sell or will some choose not to enter the market? 8. When the police resell the confiscated units, what must happen to the number of units brought to market by sellers? Would all the sellers from experiment 4.3 still choose to sell in experiment 4.4.