PS2 - Economics 102 Introductory Macroeconomics Spring 2005...

Economics 102 Introductory Macroeconomics - Spring 2005, Professor J. Wissink
Problem Set 2
1.
The labor market in Tompkins County is given by the following table:
Salary
per worker per year (thousand
$)
Workers supplied
per year
(thousands)
Workers demanded
per year (thousands)
10
10 70
20
30 60
30
50 50
40
70 40
50
90 30
a)
Graph the demand and supply curves of this market. What are the equilibrium price and quantity?
b)
Using your graph, show the impact of a minimum salary law set by the government at $40 thousand per
year. Calculate any surplus or shortage that occurs because of this policy.
c)
Suppose the government decides to offer unemployment compensation of $7,000 per year to any
unemployed worker. To receive this unemployment benefit, a worker must: (a) have been employed before the
floor price was introduced; and (b) have become unemployed because the salary floor was introduced. Estimate
the number of workers that will receive unemployment compensation and the cost of this program to the
government.
2.
Suppose the demand and supply for newspapers are described by the following equations:
Demand: X
D
= 1450 – 100P and Supply: X
S
= -125 + 125P (Where "P" is measured in dollars and X in number of
newspapers, in thousands.)
a) Graph the curves and find the equilibrium price and quantity.
b)
Due to the introduction of “news portals” on the internet, the demand curve shifts, becoming
X
D
= 1000 – 100P. Show this shift and find the new equilibrium.
c)
The government decides it wants to protect newspaper editors from this change in market conditions and decides
to implement a price floor of $4 per newspaper. What will be the effect of this floor on the newspaper market?
What if the price floor is $6 per newspaper? Be specific.
d)
Comment on the following statement: "Removal of controls would result in an increase in demand but at a higher
price, which would benefit newspaper editors." Is this correct?
3.
Consider the market for “Fast Food” burgers. Listed below are some events that could have some effect on one or
more of the following with respect to this burger market: quantity demanded, quantity supplied, equilibrium price and
quantity, demand, and supply. Indicate which of the above are directly affected and in what direction (i.e., increase,
decrease, etc.). Analyze and graphically illustrate each situation/event separately (do not add the events one on top of
the other).
a)
There is a rise in the wholesale price of ground beef.
b)
There is a price reduction in the market for “Fast Food” fajitas (a close substitute for these hamburgers).
c)
There is a new outburst of the “Mad-Cow” disease.