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13-Discussion Questions

13-Discussion Questions - Lecture 13 Perfect...

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Lecture 13: Perfect Competition (III) Suggested questions and exercises (Pindyck and Rubinfeld, Ch.9). Questions: 3, 8, 9 Exercises: 1, 2, 9, 15 QUESTIONS 3. How can a price ceiling make consumers better off? Under what conditions might it make them worse off? 8. The burden of a tax is shared by producers and consumers. Under what conditions will consumers pay most of the tax? Under what conditions will producers pay most of it? What determines the share of a subsidy that benefits consumers? 9. Why does a tax create a deadweight loss? What determines the size of this loss? EXERCISES 1. In 1996, the U.S. Congress raised the minimum wage from $4.25 per hour to $5.15 per hour. Some people suggested that a government subsidy could help employers finance the higher wage. This exercise examines the economics of a minimum wage and wage subsidies. Suppose the supply of low-skilled labor is given by L w S = 10 , where L S is the quantity of low-skilled labor (in millions of persons employed each year) and w is the wage rate (in dollars per hour).
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