2-1 Airline Delays

How will commercial airlines respond to the

threat of new $27,500 fines for keeping passen_x0002_gers on the tarmac for more than three
hours?
What inefficiency will this create?

The inefficiency present in this problem is with regards to time. The said comemrcial airlines must
pay a fine of $27,000 if they choose to keep the passengers in the tarmac for 3 hours. Instead of
doing such, we can eliminate the inefficiency by cancelling the flight. A cancelled flight is non
refundable, which means the company or airline's profit will remain as it is, and the passengers can
opt to have their flight rescheduled.
2-2 Selling Used Cars

I recently sold my used car. If no new produc_x0002_tion occurred for this transaction, how could it
have created value?

In this scenario, it is possible that the seller sold his car at a lower price due to the car being a
second-hand vehicle, while the buyer was able to discern a much higher price for the said car after
checking it. This transaction then creates an agreed price where the seller gains a surplus, and thus
the used car creating more value than its current worth.
2-3 Flood Insurance

The U.S. government subsidizes flood insurance

because those who want to buy it live in the
flood plain and cannot get it at reasonable rates.
What inefficiency does this subsidy create?

The inefficiency in this problem is that subsidized insurance destroys wealth instead of
creating wealth. A subsidy can move assets from a high-value use to a lower-value use.
The government, instead of creating wealth is doing the exact opposite by supporting
houses in a flood plain financially. Rather than the government being able to use for
more beneficial projects to the whole community, it tends to be singled out and
distributed to a more focused group.