1. Many countries around the world have some sort of minimum wage law.

Explain why the minimum

wage may hurt workers as much as help them. Give some ideas as to how the government could help
workers more effectively.

Higher minimum wages are becoming the norm in many countries. Although a minimum wage policy is
intended to ensure a minimal standard of living, unintended consequences undermine its effectiveness.
A good deal of evidence indicates that the wage gains from minimum wage increases are offset, for
some workers, by fewer jobs. Furthermore, the evidence on distributional effects, though limited, does
not point to favorable outcomes from minimum wage hikes, although some groups may benefit. Other
mechanisms, such as earned income tax credits, appear more effective at helping low-income families.

In my opnion:Here are the eight job creation strategies which goverment could help workers.

· Reduce Interest Rates. ...

· Spend on Public Works. ...

· Spend on Unemployment Benefits. ...

· Cut Business Payroll Taxes for New Hires. ...

· Defense Spending and Job Creation. ...

· When to Use Expansionary Fiscal Policy. ...

· Job Creation Statistics. ...

· Presidents Adding Jobs.

2. What is the effect of a price ceiling on the quantity demanded of the product? What is the effect of a
price ceiling on the quantity supplied? Why exactly does a price ceiling cause a shortage?

Excess demand or shortages will result. Excess supply or surpluses will result. For the price that the
ceiling is set at, there is more demand than there is at the equilibrium price. There is also less supply
then there is at the equilibrium price, thus there is more quantity demanded then quantity supplied.

3. What would be the impact of imposing a price floor below the equilibrium price?

Price floors prevents a price from falling below a certain level.

4. How does a price floor set above the equilibrium level affect quantity demanded and quantity
supplied?

By increasing the price, the quantity demanded will fall and the quantity supplied will rise. That will
create a surplus.

5. Draw a demand curve for beef. In your diagram, show a price of beef and the consumer surplus at that
price. Explain in words what this consumer surplus measures.

6. It is a hot day, and Ali is thirsty. Here is the value he places on a bottle of water: Value of first bottle $7
Value of second bottle $5 Value of third bottle $3 Value of fourth bottle $1 a. From this information,
derive Ali’s demand schedule. Graph his demand curve for bottled water. b. If the price of a bottle of
water is $4, how many bottles does Ali buy? How much consumer surplus does Ali get from his
purchases? Show Ali’s consumer surplus in your graph. c. If the price falls to $2, how does quantity
demanded change? How does Ali’s consumer surplus change? Show these changes in your graph.

7. Peter owns a water pump. Because pumping large amounts of water is harder than pumping small
amounts, the cost of producing a bottle of water rises as he pumps more. Here is the cost he incurs to
produce each bottle of water: Cost of first bottle $1 Cost of second bottle $3 Cost of third bottle $5 Cost
of fourth bottle $7 a. From this information, derive Peter’s supply schedule. Graph his supply curve for
bottled water. b. If the price of a bottle of water is $4, how many bottles does Peter produce and sell?
How much producer surplus does Peter get from these sales? Show Peter’s producer surplus in your
graph. c. If the price rises to $6, how does quantity supplied change? How does Peter’s producer surplus
change? Show these changes in your graph.

8. Using Figure A7-4 (in your notes), explain why the point of tangency of the budget line with an
indifference curve is the consumer’s equilibrium position. Explain why any point where the budget line
intersects an indifference curve is not equilibrium. Explain: “The consumer is in equilibrium where MRS =
PB/PA.”

The tangency point places the consumer on the highest attainable indifference curve; it identifies the
combination of goods yielding the highest total utility. All intersection points place the consumer on a
lower indifference curve. MRS is the slope of the indifference curve; PB/PA is the slope of the budge line.
Only at the tangency point are these two slopes equal. If MRS > PB/PA or MRS < PB/PA, adjustments in
the combination of products can be made to increase total utility (get to a higher indifference curve).

9. Assume that the data in the accompanying table give an indifference curve for Mr. Chen. Graph this
curve, putting A on the vertical axis and B on the horizontal axis. Assuming that the prices of A and B

are $1.50 and $1.00, respectively, and that Mr. Chen has $24 to spend, add his budget line to your graph.
What combination of A and B will Mr. Chen purchase? Does your answer meet the MRS = PB/PA rule for
equilibrium?

Units of A Units of B

16 6

12 8

8 2

4 24

10. Mujtaba buys an iPod for $120 and gets consumer surplus of $80. a. What is his willingness to pay? b.
If he had bought the iPod on sale for $90, what would his consumer surplus have been? c. If the price of
an iPod were $250, what would his consumer surplus have been?
Step-by-step solution 1.

Step 1 of 4

Consumer surplus is given by the difference between the willingness of the consumer to pay and the
actual price he pays.

Consumer surplus= Maximum price willing to pay by the buyer – Actual price paid.

Step 2 of 4

a) M’s consumer surplus= $80,

Actual price paid or market price= 120.

Maximum willing price can be calculated by submitting these values in the formula. Consumer
surplus= Maximum price willing to pay by the buyer – Actual price paid.

$80 = Maximum price willing to pay by the buyer – $120

Maximum price willing to pay by the buyer= $80 +$ 120 = $ 200.

Maximum price willing to pay by the M is = $200

Step 3 of 4

b) When actual price paid is $90.

Consumer surplus= Maximum price willing to pay by the buyer – Actual price paid.

Actual price paid= $90

Maximum willing price =$ 200

Consumer surplus= $200 -$90 = $ 110.

Thus, when actual price is $90, consumer surplus is $110

4. Step 4 of 4

c) If the actual market price is $250, then the consumer surplus is zero because the price of product is
greater than the willingness to pay of the consumer. Thus, consumer surplus is zero.