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3. The federal government currently taxes alcohol on the basis of the 100-proof gallon. (Alcohol that is 100 proof is 50 percent pure ethyl alcohol; most hard liquor sold is 80 proof, or 40 percent ethyl alcohol, whereas wine is usually about 24 proof, and most beer is 6-10 proof.) How would alcohol consumption patterns change if the government taxed alcohol strictly on the basis of volume rather than also taking its potency into account? 4. During Prohibition, some speakeasy operators paid bribes to ensure that the police did not raid them. Would you expect the quality of the liquor served in such speakeasies to be higher or lower than in those that did not pay bribes? Would you expect to find differences (e.g., in income levels) between the customers patronizing the two types of speakeasies? 5. The markets for prostitution in Nevada and New Jersey have two important differences: (i) prostitutes in New Jersey face higher costs because of government efforts to prosecute them and (ii) customers in New Jersey face higher risks of contracting diseases from prostitutes because the illegal nature of the business makes reliable information about product quality much more costly to obtain. Given these facts, in which state would you expect the price of prostitution services to be higher? Which state would have the higher amount of services consumed (adjusted for population differences)? Explain your answer. 6. According to the Surgeon General of the United States, nicotine is the most addictive drug known to humanity, and cigarette smoking kills perhaps 300,000-400,000 people per year in the United States. Why then isn't tobacco illegal in America?

3. The federal government currently taxes alcohol on the basis of the 100-proof gallon. (Alcohol that is 100 proof is 50 percent pure ethyl alcohol; most hard liquor sold is 80 proof,
or 40 percent ethyl alcohol, whereas wine is usually about 24 proof, and most beer is 6-10 proof.) How would alcohol consumption patterns change if the government taxed
alcohol strictly on the basis of volume rather than also taking its potency into account?
4. During Prohibition, some speakeasy operators paid bribes to ensure that the police did not raid them. Would you expect the quality of the liquor served in such speakeasies to be
higher or lower than in those that did not pay bribes? Would you expect to find differences (e.g., in income levels) between the customers patronizing the two types of
speakeasies?
5. The markets for prostitution in Nevada and New Jersey have two important differences: (i) prostitutes in New Jersey face higher costs because of government efforts to
prosecute them and (ii) customers in New Jersey face higher risks of contracting diseases from prostitutes because the illegal nature of the business makes reliable information
about product quality much more costly to obtain. Given these facts, in which state would you expect the price of prostitution services to be higher? Which state would have the
higher amount of services consumed (adjusted for population differences)? Explain your answer.
6. According to the Surgeon General of the United States, nicotine is the most addictive drug known to humanity, and cigarette smoking kills perhaps 300,000-400,000 people per
year in the United States. Why then isn't tobacco illegal in America?

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