5. Assume that there are only two people in society. The demand curve for person A for mosquito control is given by qA = 100 - P. For person B, the demand curve for mosquito control is given by qB = 200 - P. This activity could be produced at a constant marginal cost of $50 per unit. a. What is the optimal level of mosquito control? (5%)

7. Comment on the following statement and show what would happen in the long run if such advice were followed by the Central Bank: "The increase in the stock market has increased people's wealth. As a result, their consumption has increased, increasing aggregate demand and output. So the Central Bank needs to increase the money supply, since with higher income, people's demand for real money balances will be higher." (12%)

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