ECON 213 Problem Set 2 complete solutions correct answers key

Liberty University Econ 213 Problem Set 2 complete solutions correct answers key

Problem Set 2 is due by 11:59 p.m. (ET) on Monday of Module/Week 4.

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?