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Liberty University Econ 213 Problem Set 2 Complete Solutions Correct Answers Key

Solutions for problem set 2 covering key microeconomic and macroeconomic concepts.

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    ECON 213 Page 1 of 8 L IBERTY U NIVERSITY E CON 213 P ROBLEM S ET 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 I nternet security professionals. ( Hint : I n the labor market , the roles are reversed. Those who want t o 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 I nternet security threats, the government wants to apply a price control in this market to encourage more people to become I nternet 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 P reschoolers 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 pri ce 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 - fire d 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. Maxi m um amount a buyer

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    ECON 213 Page 2 of 8 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?

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