Problem Set 1 (solutions).pdf - Problem Set 1(DUE DATE Name_SOLUTIONS PART I Please answer the following multiple choice questions by choosing the best

# Problem Set 1 (solutions).pdf - Problem Set 1(DUE DATE...

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Problem Set 1. ( DUE DATE 09/18/2019) Name______SOLUTIONS________________________ PART I Please answer the following multiple choice questions by choosing the best alternative. 1. Moira's utility function is given by U= 110 × ln(C) + 55 × ln(L), where Cis consumption (in dollars) per year and Lis hours of leisure per year. Moira can make \$10 per hour and can work up to 2,000 hours per year. Which of the following correctly represents the utility maximization problem and budget constraint? a. Max U= 100 × ln(C) + 50 × ln(L) subject to C= 10 × Lb. Max U= 110 × ln(C) + 55 × ln(L) subject to C= 10 × (2,000 – L)c. Max U= 100 × ln(C) + 55 × ln(L) subject to C= 15 × (2,000 – L)d. Max U= 100 × 10 × (2,000– L) subject to C= (2,000 – L)ANSWER: b 2. Suppose voters choose to increase their state's minimum wage to \$6 per hour from \$3 per hour. The accompanying figure shows the market for unskilled labor in that state after the change. Area(s) _____ is the total consumer surplus after this change, while area(s) _____ is the deadweight loss.
3.Producer surplus can be defined as the difference between: 4. The First Fundamental Theorem of Welfare Economics states that: 5. Suppose a company that produces chemicals disposes of PCBs (a cancer-causing toxin) in the local lake. The private costs of production are incurred by _____; the social costs of production are incurred by _____. a. the company; the companyb. the company; people affected by the PCBs and the companyc. people affected by the PCBs; the companyd. people affected by the PCBs; people affected by the PCBs and the companyANSWER: b

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