PS5 - PAM 2000 Intermediate Microeconomics Problem Set 5...

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PAM 2000, Intermediate Microeconomics Problem Set 5 Return to TA by beginning of class Thursday, April 9th I. True, False or Uncertain. Explain . No credit given without explanation. Use graphs or algebra to help explain your answer whenever possible (3 points each). 1. Total welfare under monopoly is less than total welfare under competition. 2. Consumers who are more sensitive to changes in price suffer a greater loss of consumer surplus from any given price increase. 3. Policies that restrict supply are likely to generate an increase in social welfare because the increase in producer surplus could exceed the decrease in consumer surplus. 4. A monopolist does not have a supply curve. II. Problem Solving. 3.5 points each 1) Suppose that the minimum wage covers all sectors of the economy; however, for unionized laborers, the minimum wage is ineffective. That is, the union wage is already above the minimum wage. Analyze the impact of an increase in the minimum wage on both the unionized and non-unionized labor markets. (Assume that the higher minimum wage is still ineffective in the unionized sector and that union and nonunion labor are substitutable.) 2) Think about the market for electric cars. Suppose that the government grants a per-car subsidy to all buyers of electric cars. That is, if you buy an electric car, the government gives you $X. Use a graph to analyze the impact of this subsidy on the electric car market. In your graph, show clearly the different areas of (i) the amount of the subsidy; (ii) consumer and producer surplus both before and after the subsidy is enacted; and (iii) any area of deadweight loss. Also, discuss (i) any effect the subsidy has on equilibrium price and quantity; and (ii) the nature of the deadweight loss (that is, use simple language to explain what the deadweight loss actually is). . III Multiple Choice (1 point each) 1. A competitive equilibrium is Pareto efficient because at the competitive equilibrium
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