Economics

Problem Set #2 陳貞穎 112205020

1,
a) The maximum price=1.4 dollars per loaf

b) The maximum price=1.1 dollars per loaf

c) The efficient quantity=160loaves

d) The consumer surplus=0.8*160*1/2=64

e) The producer surplus=0.4*160*1/2=32

f) Deadweight loss=0.3*40*1/2=6

2,
a) 2 hours

b) The consumer surplus = 15*4*1/2=30, the producer surplus = 9*4*1/2 = 18

c) The consumer surplus=5*2*1/2=5, the producer surplus = (25-6) + (25-9) = 35

d) When the price was $15, the consumer surplus + producer surplus = $48. When the price
is $25, the consumer surplus + producer surplus = $40. The $8 is the deadweight loss.

3,
a) The equilibrium price=$2, the equilibrium quantity=400 gallons.
This is equilibrium efficient because the quantity demanded
equals to the quantity supplied, which MSB=MSC.

b) The maximum price that consumers are willing to pay=$1.5, The

minimum price that producers are willing to accept to produce is
$2.25.

c) Since 500 gallons is greater than the efficient quantity, there will be a supply surplus. In
this case, MSB < MSC, which means that there will be a deadweight loss.

d) The consumer surplus equals 200*2*1/2= $400. The producer surplus=400*1*1/2= $200.

e) The deadweight loss=100*0.75*1/2= $37.50.

4,
a) The equilibrium wage rate = 4 dollars per hour, the equilibrium amount of employment =
8000 thousands of workers.
b) The amount of employment = 6000, it would not affect employment, and there would be
no unemployment created. The minimum wage is not binding in this case because it's set
below the equilibrium wage.
c) The amount of employment = 4000, employers are not willing to hire as many workers as
there are workers willing to work at that wage. This creates a surplus of labor, which
causes unemployment. Some workers who were willing to work at the equilibrium wage
may not find jobs due to the higher minimum wage.
5.
a) The new equilibrium price is $1.50 (2-1*0.5), and the new
equilibrium quantity is 800. The subsidy reduces the price paid by
buyers and increases the quantity of bread sold.

b) Sellers receive the price from buyers plus the subsidy. With
the $1 subsidy, sellers receive $1.50 per loaf for bread, which is
the new equilibrium price.

c) The MSC of the last loaf produced is the cost to producers, is the original supply curve.
The MSB is the price paid by buyers, which is the demand curve. With the subsidy, the MSC
is still the same as the original supply curve, and the MSB is still the same as the demand
curve. If there are no external costs or benefits, the market is efficient once the subsidy is
granted, as the MSC equals the MSB at the new equilibrium.

6.
a) Without international trade, the price of a container of roses is
$175 and 6 million containers of roses a year are bought and sold
in the United States.

c)North American rose

wholesalers, who are the
consumers in the problem,
gain from free
international trade. The price falls and they
purchase more roses. North American rose
growers
lose from free international trade. The
price falls and they sell fewer roses.
c) North American rose wholesalers gain from free international trade. The price falls and
they purchase more roses. North American rose growers lose from free international trade.
The price falls and they sell fewer roses.

d) 10*125=$1250 million

Bonus:
1. Some governments may cap the prices of essential goods, such as food and fuel, to ensure
access to these essential goods. For example, the German government lead out the limitation
of energy prices due to the shortage of natural gas.