Liberty University Econ 213 Problem Set 2 solutions answers
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1.
The
following table presents data for wages in the market for Internet security
professionals.
(Hint: In the labor market, the roles are reversed. Those who want
to hire labor are the demanders. The workers enter the workforce providing
labor to the marketplace, so they are the suppliers.)
|
Wage
|
Quantity Demanded
|
Quantity Supplied
|
|
$50,000
|
20,000
|
14,000
|
|
$60,000
|
18,000
|
18,000
|
|
$70,000
|
16,000
|
22,000
|
|
$80,000
|
14,000
|
26,000
|
|
$90,000
|
12,000
|
30,000
|
a.)
What
is the equilibrium wage? ___________________________________
Now, consider this
scenario: Due to an increase in Internet security threats, the government wants
to apply a price control in this market to encourage more people to become Internet
security professionals. Assume that a wage control is set at $75,000.
b.)
Will
this increase the number of people entering this labor market? Why or why not?
c.)
Will
this increase the number of people hired? Why or why not?
2.
Assume
you are a policymaker in Washington, DC. Lobbyists for the Preschoolers of
America have put pressure on their representatives to cap prices on graham
crackers. You have been assigned a position on a new committee to study the
impact of a price ceiling on graham crackers.
Your job is to:
a.)
Illustrate
using a fully labeled supply and demand graph what such an artificial price
looks like (label all the axes and any lines you put in your graph).
b.)
Explain
what the results of such a move are for the graham cracker market. In other
words, will there be a shortage, a surplus, or neither created? Why?
3.
Pollution
is considered by most a negative externality. Some economists would like to see
the costs of these burdens incorporated into the price of goods that we buy.
For instance, since coal-fired power plants increase emissions that could
potentially lead to climate change, these economists believe that the price we
pay for electricity is not high enough.
a.)
Draw
a completely labeled graph and illustrate on the graph how much higher
electricity prices would be if the full costs of electricity production were
taken into account. You do not need to provide actual numbers; rather, show on
the price axis where the price would be before the externality is considered
and where the price would be after the externality is considered.
b.)
What
problems might exist in determining this new, externality-based price?
4.
Using
the information below about individuals and their willingness to pay for a bottle
of ginger ale, calculate the total consumer surplus at a market price of $5.
|
|
Maximum amount a
buyer would pay for ginger ale
|
|
Scott
|
$10
|
|
Dennis
|
$4
|
|
Greg
|
$8
|
|
Dave
|
$7
|
|
Mike
|
$5
|
Using the information
below about willingness to supply ginger ale, calculate the total producer
surplus at a market price of $5.
|
|
Marginal cost of
producing ginger ale
|
|
Gene
|
$6
|
|
Brandon
|
$3
|
|
Matt
|
$2
|
|
Cooper
|
$11
|
|
Jed
|
$5
|
How do your answers
change if the price falls to $2?
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