ECO 213 Problem Set 2 (2015)

    Problem Set 2
    Name:
    __________________________________________

    Problem Set 2 is to be completed
    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 work force providing labor to the market
    place 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

    What is
    the equilibrium wage? ___________________________________
    Now,
    consider this scenario: Due to an increase in the 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. Will this increase the number of people entering this labor
    market? Why or why not? 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 (label all the axes and any lines you put in your
    graph) what such an artificial price looks like.
    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 fire power plants increase emissions that could
    potentially lead to climate change, these economists believe that the price we
    pay for electricity is not adequately high enough. 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 the price after the
    externality is included. What problems might exist in determining this new,
    externality based, price?

    4.
    In
    the old days lighthouses were built along the coast to prevent ships from
    running aground on rocks in unfamiliar ports. By shining a beam of light over a
    port and guiding ships away from rocks, these vital buildings reduced the risk
    for ship captains and were generally considered to be extremely valuable
    resources. Curiously, lighthouses were almost always run and maintained by
    local governments. Explain in economic terms why private firms would not run a
    lighthouse.

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