1. Consider the trip to the center of Albuquerque, where congestion is an issue. The mayor asks you to create a model of demand and supply to come up with two specific policies that might reduce congestion. In developing your model, assume the good/service is “road space.” Be sure to explain whether your policy affects demand or supply and how it would affect the market equilibrium (e.g., does your policy shift demand or supply? is it a movement along a static curve? what is the predicted impact on road usage and why?). Illustrate the effects of each policy on separate demand and supply graphs. Make sure your graph is stand-alone and interpret it for the reader
2. In this analysis, you’ll apply concepts from class to consider the effects of demand changes on a perfectly competitive firm’s profit-max decision. During the initial effects of Covid, airlines began charging incredibly low fares. Suppose the fare offered was insufficient to cover the airlines’ average total cost of production. Using concepts from class, explain in words and a graph why an airline would be willing to accept such a low price in the short run. Make sure your graph is stand-alone and interpret it for the reader.
