07 Jun Question Chapters 8 and 9 Due: 8/31
Question
Chapters 8 and 9
Due: 8/31
Consider the competitive market for sunglasses and assume that it is in long-run equilibrium.
Draw two figures, one for the firm and one for the market (similar to what we did in class).
Suppose that weather forecasters were correct in their predictions for El Niño and that this reduces the need for sunglasses. On the figure in part i, draw what would happen in the short run.
In the long-run, will firms enter or exit? How do you know?
As firms enter/exit, what happens to supply? When do firms stop entering/exiting?
Consider the market for labor given by the following demand and supply curves:
; where Q is millions of employees, and P is dollars per hour ($/hour).
What is the competitive equilibrium price and quantity in this market for labor?
Draw the supply and demand graph for this labor market. Label producer and consumer surplus.
Suppose the government decides to set a minimum wage of $12/hour. What is the regulated market’s equilibrium price and quantity?
Draw the supply and demand graph for this labor market, including a horizontal line for the $12 minimum wage. Label producer surplus, consumer surplus, surplus transferred, and deadweight loss.
Calculate how much surplus is transferred when the minimum wage is implemented. The transferred surplus is transferred from what group of people to what group of people?
(Circle the best option) Overall welfare (total surplus) INCREASES / DECREASES / REMAINS CONSTANT relative to the unregulated market, as a result of the minimum wage.
(Circle the best option) If the minimum wage is $6, overall welfare (total surplus) INCREASES / DECREASES / REMAINS CONSTANT relative to the unregulated market, as a result of the minimum wage.
Consider the competitive market for some good.
Draw the demand and supply graph where demand is relatively more elastic. Show what happens when the government implements a tax. Label consumer surplus, producer surplus, government revenue, and consumer and producer burdens. Who does the burden fall more on? (you do not have to add values)
Repeat part i, but assume that supply is relatively more elastic.
What can you say about elasticity and tax burden based on your answers in parts i and ii?
What governmental policies will lead to an increase in the price that sellers receive and the price that buyers pay? Assume that this economy does not engage in trade. In each case, discuss the channel through which the government achieves this change (through price or quantity).
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