ECO-2023 Lecture Notes - Lecture 4: Nicotine, Proportional Tax, Deadweight Loss

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12 Jan 2016

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Note: it works just like the market for goods, only with a different name for price (w) and quantity (e) Labor demand: firms demand labor, labor demand curve is downward slopping, because as wage decreases, firms will want to employ more people. Labor supply: workers supply labor, labor supply curve is upward slopping because, as wage increases, people will want to work more. Note: there is a close relationship between the demand for products and the demand for resources used to make such products. Price ceiling: a legally established maximum price sellers can charge for a good or resource. A price ceiling below market equilibrium creates a shortage- more people want the good, yet there will be a limited amount of that good produced. A price ceiling above market equilibrium price does nothing- suppliers are not going to make it too expensive because people won"t buy it anyway, price will likely remain in the market equilibrium.

Related Questions

1- When a price ceiling is imposed, long lines are likely to follow. The value of the time wasted waiting in these lines should be equal to the difference between the market equilibrium price and the imposed price ceiling.

Suppose that demand for a good is given by Q = 122 - 3P, while supply for the good is given by Q = 1P - 20. The average person values their time at $12.29/hour. If a price ceiling of $11.04 is imposed, how many hours will the average person have to wait in line?

2- Suppose that demand for a good is given by Q = 132 - 3P, while supply for the good is given by Q = 2P - 5. If a price ceiling of $11.96 is imposed, what will be the area of the deadweight loss?

The unemployment rate is the percentage of workers who are seeking a job at the prevailing wage, but who are unable to get one. When a minimum wage is imposed, it creates some unemployment among minimum wage workers.

Suppose that the demand for labor is given by Q = 56 - 1W, where 'W' is the hourly wage rate, and the supply of labor is given by Q = 5W - 5. Imagine that a minimum wage of $22.68/hour is imposed by law.

What will be the unemployment rate for workers in this market?

1.) An excise tax on a good typically reduces the net price received by the seller. (TRUE/FALSE)

2.) The burden of an excise tax on gasoline falls entirely on consumers of gasoline. (TRUE/FALSE)

3.) Rent controls are one of the few examples of a price floor in market economies. (TRUE/FALSE)

4.) Imposing a price ceiling below the equilibrium price of a good often leads to_____.

A) A greater supply of the good

B) A black market for the good

C) A rightward shift of the supply curve for the good.

D) A leftward shift of the demand curve for the good.

E) All of these

5.) Which of the following is true of price floors and ceilings?

A) Lead to the same price and quantity as in competitive market.

B) Lead to technical efficiency

C) Cause the demand curve to shift left

D) Usually result from government intervention

E) Cause the supply curve to shift right.

6.) Price ceilings often lead to black markets. (TRUE/FALSE)

7.) When minimum wage is above the equilibrium wage what occurs?

A) There will be a shortage of labor

B) There will be no effect on the number of people employed

C) There will be an increase in unemployment rate

D) There will be a decrease in unemployment rate

8.) An excise tax on a good typically reduces the price paid by the consumer (TRUE/FALSE)

9.) If a price ceiling is below the equilibrium price is imposed on a market, it will cause the quantity demanded to rise and the quantity supplied to fall. (TRUE/FALSE)

10.) Price floors often lead to black markets. (TRUE/FALSE)

11.) If an excise tax is imposed on restaurant meals what occurs?

A) Fewer meals will be produced and sold

B) More meals will be produced and sold

C) Market price of the meals will fall

D) Government tax revenue will fall.

mauveyellowjacket715

. Low-skilled workers operate in a competitive market. The labor supply is Qs = 10W (where W is the price of labor measured by the hourly wage) and the demand for labor is Qd = 240 â 20W. Q measures the quantity of labor hired (in thousands of hours).

a. What is the equilibrium wage and quantity of low-skilled labor working in equilibrium?

b. If the government passes a minimum wage of $9 per hour, what will be the new quantity of labor hired? Will there be an excess demand or excess supply of labor? How large?

c. What is the deadweight loss of a $9 minimum wage?

d. How much better off does the $9 minimum wage make low-skilled workers (in other words, how much does producer surplus change), and how much worse off are employers?

ECO-2023 Lecture Notes - Lecture 4: Nicotine, Proportional Tax, Deadweight Loss

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