EC101.03&04
Fall 2016
Problem Set 2-Short answers
Ch. 4:
Q8.
a.
b.
c.
d.
4. 12.
6.
6. 5.
30.
Ch. 5:
Q6.
a. Equilibrium wage will be 30000 and jobs will be 290000. No there will be no
involuntary unemployment.
b. At 35000 there will be 310000-250000 = 60000 involuntary unemployment. At 40000
there will be 320000-220000 = 100000 involuntary unemployment.
c. The higher the minimum wage the higher is the involuntary unemployment. Those
who find a job benefit. Those who cannot find a job lose.
Q8.
a. 1200 produced, 800 purchased. 400 goes to government. Corn farmers receive 1200*5
= 6000. Government pays 400*5 = 2000.
b. With a ‘target price’ government pays the difference to the farmers. Market
equilibrium will be price of 3 and quantity of 1000. Government will make an
additional payment of 2 to farmers. Government pays 1000*2 = 2000. Producers
receive 5*1000 = 5000.
c. Consumers spend less with ‘target price’. It is equally expensive for government.
d.
Q9
b. Fishermen will compete to get the fish first before the quota is reached. Season will
be closed very early.
Ch. 6:
Q2.
d.
e.
f.
g.
More elastic because a substitute is now available.
Less elastic since a substitute is eliminated.
Less elastic because ordinary cars are not as close a substitute as before.
More elastic.