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**Unformatted text preview: **= s Comprehensive Problem • Ex1 : Suppose the market for widgets can be described by the following equations: Demand: P = 10 - Q Supply: P = Q - 4 a) What is the equilibrium P and Q? b) Suppose the government impose a tax of $1 per unit. What will the new equilibrium Q be? What price will the buyer pay? What amount per unit will the seller receive? c) Suppose the tax is removed and a subsidy of $1 per unit granted to widget producers. What will the equilibrium Q be? What price will the buyer pay? What amount per unit (including the subsidy) will the seller receive? What will be the total cost to the government? 3 • Ex 2 : Suppose the demand and supply of low-skilled labor is given by L S =10W L D = 80 – 10W a) What will be the free-market wage rate and employment level? Suppose the government sets a minimum wage of $5 per hour. How many people would then be employed? Any question, contact me 089-136-3264 or [email protected]..

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