Problem Set 2 - If so, what is the value of the...

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Economics 304K: Spring 2008 Helen Schneider Problem Set 2 DUE: WEDNESDAY, FEBRUARY 13 NAME: _________________________________ 1. The figure below shows the supply and demand curves for corn: a. If the government sets a price floor of $300 and agrees to buy and store whatever farmers cannot sell to consumers at this price, how much will it have to buy? How many tons of corn will be sold per year? b. Corn is an important input in ethanol production. What effect will the price floor have on the ethanol market? Use supply and demand diagrams to illustrate your answer. c. While the price floor is in effect, insect pests destroy much of America’s corn crop. What effect will this have on the corn market? Use supply and demand diagrams to illustrate your answer. d. Consumers protest high corn prices and, as a result, the government abolishes the $300 price floor and instead imposes a $300 price ceiling. How much corn will be sold now? Is there a shortage or surplus of corn?
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Unformatted text preview: If so, what is the value of the surplus/shortage? (40 points, 10 points each) 2. True/False. If the equilibrium wage rate is $5 per hour, and the minimum wage is $7.25 per hour, a shortage of labor will exist. Graphically explain your answer. (10 points) 1 3. Using the graph shown, answer the following questions. a. What was the equilibrium price in this market before the tax? b. What is the amount of the tax? c. How much of the tax will the buyers pay? d. How much of the tax will the sellers pay? e. How much will the buyer pay for the product after the tax is imposed? f. How much will the seller receive after the tax is imposed? g. As a result of the tax, what has happened to the level of market activity? (35 points, 5 points each) 4. Using the graph shown, construct a demand curve for marshmallows given an income of $20. (15 points) Quantity of Chocolate Chips Quantity of Marshmallows 5 4 10 6 20 10 2...
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This note was uploaded on 04/08/2008 for the course ECON 304K taught by Professor Ledyard during the Spring '08 term at University of Texas.

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Problem Set 2 - If so, what is the value of the...

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