Professional Documents
Culture Documents
Modern Principles Macroeconomics 3rd Edition Cowen Solutions Manual 1
Modern Principles Macroeconomics 3rd Edition Cowen Solutions Manual 1
of economics 8 macroeconomics 5
Price Ceilings and Floors
What kind of doctor would you want to become under this system? (Note:The
actual Canadian system does allow specialist to earn a bit more than general
practitioners, but the difference isn’t big enough to matter.)
Solution 5. If both jobs pay about the same, most people would rather be a general practitioner—
the job is easier, the hours are better, and you get out of school sooner. That’s actually
what’s happening in Canada: They have lots of generalists and few specialists.
6. Between 2000 and 2008, the price of oil increased from $30 per barrel to $140 per
barrel, and the price of gasoline in the United States rose from about $1.50 per
gallon to over $4.00 per gallon. Unlike in the 1970s when oil prices spiked, there
were no long lines outside gas stations.Why?
Solution 6. There were no gas lines because this time there were no price controls on oil or gasoline.
7. Price controls distribute resources in many unintended ways. In the following cases,
who will probably spend more time waiting in line to get scarce, price-controlled
goods? Choose one from each pair:
a. Working people or retired people?
b. Lawyers who charge $800 per hour or fast-food employees who earn $8 per hour?
c. People with desk jobs or people who can disappear for a couple of hours during
the day?
Solution 7. Retired people, fast-food employees, and people who can disappear are all more
willing to stand in line.The opportunity cost of free time is higher for the other
groups.Thus, some lawyers might pay some fast-food employees to wait in line on
their behalf, as happens with ticket scalping today.
8. In the chapter, we discussed how price ceilings can put goods in the wrong place, as
when too little heating oil wound up in New Jersey during a harsh winter in the
1970s. Price controls can also put goods in the wrong time as well. If there are price
controls on gasoline, can you think of some periods during which the shortage will
get worse? (Hint: Gas prices typically rise during the busy Memorial Day and Labor
Day weekends.)
Solution 8. Oil refiners and truck drivers won’t have an incentive to deliver the extra gasoline
that people are demanding during holiday periods, so some people will wait in long
lines for scarce gas just at the time when they most want to travel.
9. a. Consider Figure 8.8. In a price-controlled market like this one, when will
consumer surplus be larger: in the short run or in the long run?
b. In this market, supply is more elastic, more flexible, in the long run. In other
words, in the longer term, landlords and home builders can find something
else to do for a living. In light of this, and in light of the geometry of producer
surplus in this figure, do rent controls hurt landlords and home builders more in
the short run or in the long run?
Solution 9. a. Consumer surplus will be larger in the short run, since the short-run shortage
is small.Thus, in the short run, consumers get lower prices and more or less the
same quantity of goods. But in the long run, the shortage increases and consumer
surplus falls. In addition, in the long run, key money, long waiting times, and
reductions in quality will all tend to eat up any benefit from lower prices.
b. Landlords and home builders are hurt more in the short run; in the long run,
they can just leave the market if things get too bad. Geometrically, we can
tell this is so because less producer surplus is lost in the long run as producers
exit the industry.
10. Business leaders often say that there is a “shortage” of skilled workers, and so they
argue that immigrants need to be brought in to do these jobs. For example, a recent
AP article was entitled “New York farmers fear a shortage of skilled workers,” and
went on to point out that a special U.S. visa program, the H-2A program,“allows
employers to hire foreign workers temporarily if they show that they were not able
to find U.S. workers for the jobs.” (Source:Thompson, Carolyn. May 13, 2008. N.Y.
farmers fear a shortage of skilled workers Associated Press.)
a. How do unregulated markets cure a “labor shortage” when there are no
immigrants to boost the labor supply?
b. Why are businesses reluctant to let unregulated markets cure the shortage?
Solution 10. a. Unregulated markets cure a labor shortage by pushing up the wage.
b. Businesses don’t like paying higher wages.They’d rather increase the supply
of labor.
11. a. If the government forced all bread manufacturers to sell their products at a
“fair price” that was half the current, free-market price, what would happen
to the quantity supplied of bread?
b. To keep it simple, assume that people must wait in line to get bread at the
controlled price.Would consumer surplus rise, fall, or can’t you tell with the
information given?
c. With these price controls on bread, would you expect bread quality to rise
or fall?
Solution 11. a. The quantity supplied must fall—that’s the easy part.
b. Consumer surplus must fall.The cost of waiting in line for the bread is the key:
That “time-wasting” rectangle (see Figure 8.2, p. 136) eats up any extra value
that might have gone to consumers.
c. Bread quality is likely to fall, just as the quality of any price-controlled good is
likely to fall.Think about the matzo balls! But one point to note is that if the
quality of the bread falls, so will the length of the line to get the bread, and we
do not want to double count the losses from price controls!
12. A review of the jargon: Is the minimum wage a “price ceiling” or a “price floor?”
What about rent control?
Solution 12. The minimum wage is a price floor, while rent control is a price ceiling.
13. How do U.S. business owners change their behavior when the minimum wage
rises? How does this impact teenagers?
Solution 13. When the minimum wage rises, businesses look harder for alternatives to hiring
low-skilled teenagers.They might hire a smaller number of skilled older workers,
they might have machines do more of the work, or they might shorten teenage
hours. If they can, businesses will also try to reduce other forms of on-the-job
compensation such as benefits or lunch breaks. None of these are good for
teenagers looking for work.
14. The basic idea of deadweight loss is that a willing buyer and a willing seller can’t find
a way to make an exchange. In the case of the minimum wage law, the reason they
can’t make an exchange is because it’s illegal for the buyer (the firm) to hire the seller
(the worker) at any wage below the legal minimum. But how can this really
be a “loss” from the worker’s point of view? It’s obvious why business owners would
love to hire workers for less than the minimum wage; but if all companies obey the
minimum wage law, why are some workers still willing to work for less than that?
Another document from Scribd.com that is
random and unrelated content:
18. See Jost’s Geschichte, vol. i. 70 and 153.
19. This alludes to בהמות. See Job xl. 15, &c. D. Levi.
21. According to Rashi, one who goes from house to house to get
alms.
23. The only explanation which Rashi gives of these words is לחש הוא
“It is a charm.”
27. Hilchoth Shabbath and Hilchoth Eruvin extend from fol. 140 to
fol. 226.
28. That is, if the Sabbath commence before he can get to a resting
place.
30. Isaac.
32. See the Machsor for the Day of Atonement, in אז מלפני בראשיתand
for the Passover, in ברה דודי.
33. ולא למהר דאינו יכול לעשותם לעולם הבא ׃, היים לעשותם בעולם הזה
1.D. The copyright laws of the place where you are located also
govern what you can do with this work. Copyright laws in most
countries are in a constant state of change. If you are outside the
United States, check the laws of your country in addition to the
terms of this agreement before downloading, copying, displaying,
performing, distributing or creating derivative works based on this
work or any other Project Gutenberg™ work. The Foundation
makes no representations concerning the copyright status of any
work in any country other than the United States.
1.E.6. You may convert to and distribute this work in any binary,
compressed, marked up, nonproprietary or proprietary form,
including any word processing or hypertext form. However, if you
provide access to or distribute copies of a Project Gutenberg™
work in a format other than “Plain Vanilla ASCII” or other format
used in the official version posted on the official Project
Gutenberg™ website (www.gutenberg.org), you must, at no
additional cost, fee or expense to the user, provide a copy, a means
of exporting a copy, or a means of obtaining a copy upon request, of
the work in its original “Plain Vanilla ASCII” or other form. Any
alternate format must include the full Project Gutenberg™ License
as specified in paragraph 1.E.1.
• You pay a royalty fee of 20% of the gross profits you derive from
the use of Project Gutenberg™ works calculated using the method
you already use to calculate your applicable taxes. The fee is owed
to the owner of the Project Gutenberg™ trademark, but he has
agreed to donate royalties under this paragraph to the Project
Gutenberg Literary Archive Foundation. Royalty payments must be
paid within 60 days following each date on which you prepare (or
are legally required to prepare) your periodic tax returns. Royalty
payments should be clearly marked as such and sent to the Project
Gutenberg Literary Archive Foundation at the address specified in
Section 4, “Information about donations to the Project Gutenberg
Literary Archive Foundation.”
• You provide a full refund of any money paid by a user who notifies
you in writing (or by e-mail) within 30 days of receipt that s/he does
not agree to the terms of the full Project Gutenberg™ License. You
must require such a user to return or destroy all copies of the works
possessed in a physical medium and discontinue all use of and all
access to other copies of Project Gutenberg™ works.
• You comply with all other terms of this agreement for free
distribution of Project Gutenberg™ works.
1.F.
1.F.4. Except for the limited right of replacement or refund set forth
in paragraph 1.F.3, this work is provided to you ‘AS-IS’, WITH NO
OTHER WARRANTIES OF ANY KIND, EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE.
Please check the Project Gutenberg web pages for current donation
methods and addresses. Donations are accepted in a number of
other ways including checks, online payments and credit card
donations. To donate, please visit: www.gutenberg.org/donate.
Most people start at our website which has the main PG search
facility: www.gutenberg.org.