2. If there is a minimum wage that is set below the equilibrium wage in the labor market, there will be:

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1 Economics 101 Problem Set 3 Due: September 20, 2018 by 5 PM To receive credit for this problem set, you must submit your answers on-line at the class webpage. Neither hard copies nor s will be accepted. You should complete your work on the questions prior to logging on to submit your answers. 1. Consider a market in which the elasticity of demand is -4, the elasticity of supply is 2, the initial price is $50 and the initial quantity is 1000 units. After an increase in consumer income, the new equilibrium quantity is 1200 units. What is the new equilibrium price? a) 52 b) 55 c) 60 d) 70 In questions 2 3 remember that the wage is the price of labor and employment is the quantity of labor. Employers demand labor and households supply labor 2. If there is a minimum wage that is set below the equilibrium wage in the labor market, there will be: a) Equal quantity of labor demanded and supplied b) Excess supply of labor c) Excess demand for labor d) Uncertain 3. If there is a minimum wage that is set above the equilibrium wage in the labor market, there will be: a) Equal quantity of labor demanded and supplied b) Excess supply of labor c) Excess demand for labor d) Uncertain In Questions 4 to 5, consider the market for rental units. The quantity is the number of rental units and the rent is the price to rent a unit. In the short-run, demand is inelastic and supply is perfectly inelastic. In the long-run, both demand and supply are elastic. 4. In the short-run, what is the effect of a binding price ceiling (compared to the situation in which there is no government involvement)? a) Rent decreases, quantity bought and sold increases, excess supply b) Rent decreases, quantity bought and sold unchanged, excess supply c) Rent decreases, quantity bought and sold unchanged, excess demand d) Rent decreases, quantity bought and sold decreases, excess demand

2 5. In the long-run, what is the effect of a price control that would reduce the rent paid per unit? a) Rent decreases, quantity bought and sold increases, excess supply b) Rent decreases, quantity bought and sold unchanged, excess supply c) Rent decreases, quantity bought and sold unchanged, excess demand d) Rent decreases, quantity bought and sold decreases, excess demand 6. Which of the following best describes the effects of a per unit purchased tax on producers when the demand curve and the supply curve are both neither perfectly elastic nor perfectly inelastic? a) Price to consumers increases; price received by producers increases; quantity bought and sold increases b) Price to consumers increases; price received by producers decreases; quantity bought and sold increases c) Price to consumers decreases; price received by producers increases; quantity bought and sold increases d) Price to consumers increases; price received by producers decreases; quantity bought and sold decreases 7. Which of the following best describes the effects of a per unit purchased subsidy to producers when the demand curve and the supply curve are both neither perfectly elastic nor perfectly inelastic? a) Price to consumers increases; price received by producers increases; quantity bought and sold increases b) Price to consumers increases; price received by producers decreases; quantity bought and sold increases c) Price to consumers decreases; price received by producers increases; quantity bought and sold increases d) Price to consumers increases; price received by producers decreases; quantity bought and sold decreases 8. Which of the following best describes the effects of a $1 per unit purchased tax on producers when the demand curve is perfectly inelastic and the supply curve is neither perfectly elastic nor perfectly inelastic? a) Price to consumers increases by $1 b) Price to consumers increases by less $1 c) Price to consumers stays the same d) Price to consumers decreases by $1 9. Which of the following best describes the effects on the price that consumers pay when considering a $1 per unit tax on consumers versus a $1 per unit tax on producers? a) The price that consumers pay is higher with a tax on consumers b) The price that consumers pay is higher with a tax on producers c) The price that consumers pay is the same d) Which tax leads to a higher price is uncertain

3 For questions 10 to 13, please use the following diagram with an initial equilibrium at point X. Supply A Price B $10 X $ Which point shows the price that consumers pay and the quantity purchased when there is a tax to consumers of $10 per unit? 11. Which point shows the price that producers receive and the quantity sold when there is a tax to consumers of $10 per unit? 12. Which point shows the price that consumers pay and the quantity purchased when there is a subsidy to producers of $10 per unit? 13. Which point shows the price that producers receive and the quantity sold when there is a subsidy to producers of $10 per unit? C D Demand Quantity

4 For Questions 14 to 18, please consider the following points on the demand curve and supply curve: Demand Curve: (100,50), (150, 40), (200, 30), (250, 20), (300,10) Supply Curve: (50,20), (100, 30), (150, 40), (200, 50), (250, 60), (300, 70) 14. What is the equilibrium quantity if there is no government involvement? 15. What is the quantity bought and sold in the market if the government implements a price floor of $30/unit? 16. What is the quantity bought and sold in the market if the government implements a price ceiling of $30/unit? 17. What is the quantity bought and sold in the market if the government implements a tax of $20/unit? 18. What is the quantity bought and sold in the market if the government implements a subsidy of $40/unit?

5 For questions 19 and 20, please use the following information for the demand curve and supply curve: Q D = P Q S = P 19. What is the quantity bought and sold if the government implements a tax of $30/unit? a) 150 b ) 180 d) What is the quantity bought and sold if the government implements a subsidy of $60/unit? a) 180 b ) 200 c) 220 d) 240