Homework 2
Economics of Life, Gender, Race, Family
Victoria Vernon
1. Define 3 of the following terms
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supply
law of supply
demand
law of demand
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surplus
shortage
normal goods
goods substitutes
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labor market
price ceiling
price floor
equilibrium
2. After the outbreaks of mad cow disease beef became less popular in the U.S.
a. Draw equilibrium in the market for beef hamburgers before and after the shift in tastes. Show how
market price and quantity sold changed.
b. Chicken is a substitute for beef. Draw a graph with equilibrium price and quantity in the market for
chicken before and after the change. Show the changes.
3. Consider the information in the table.
Price of coffee
$1
$2
$3
$4
$5
Quantity Demanded
15,000
10,000
5,000
1,500
500
Quantity Supplied
1,000
4,000
5,000
6,500
8,000
a. Is there a shortage or a surplus when the price is $4?
b. What are the equilibrium price and the equilibrium quantity?
c. Supposed NYC wants more productive workers, so it fixes the price of coffee at $2 per cup. Should
you expect a surplus, shortage, or no change in the market?
4. Suppose that the market for math teachers is in equilibrium with current wage rate $30/hour and 1,000
teachers hired at this rate.
a. Sketch supply and demand curves in the market, show equilibrium wage and employment level,
label your graph.
b. Suppose math becomes suddenly popular among high school students, hence demand for math
teachers increases. Show the corresponding shift on your graph. At $30/hour, is there a surplus
or a shortage of teachers? Mark the new equilibrium wage and number of teachers (make up
some numbers).
c. What will happen in this market if math become less popular among students? Draw a new graph.
d. Suppose we are back in part (a) and there is a sudden increase in the supply of college graduates
with degrees in teaching math. Show how this shift affects wages and employment level on a
new graph. Is the new wage rage higher or lower than the old rate?
5. Read about minimum wages using links on the course website. Answer any 2 questions below.
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2.
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Are minimum wage rates different in different countries?
Who benefits from higher minimum wages?
Who is hurt by higher minimum wages?
How can an increase in minimum wage lead to higher unemployment?
How can an increase in minimum wage lead to higher prices?
Do you think minimum wages in the US are too low?
What are the main arguments in favor of increasing min wage in the US
What are the arguments against further increases in minimum wage?