1 – In the song “Minimum Wage,” the punk band Fenix TX comments on the inadequacy of minimum wage to make ends meet.  Using the poverty thresholds provided by the Census Bureau, determine whether the federal minimum wage of $7.25 an hour provides enough income for a single full-time worker to escape poverty.

2 – Imagine that the community you live in decides to enact a rent control of $700 per month on every one-bedroom apartment.  Using the following table, determine the market price and equilibrium quantity without rent control.  How many one-bedroom apartments will be rented after the rent-control law is passed?

3 – Suppose that the federal government places a binding price floor on chocolate.  To help support the price floor, the government purchases all of the leftover chocolate that consumers do not buy.  If the price floor remains in place for a number of years, what do you expect to happen to each of the following?

A – quantity of chocolate demanded by consumers

B – quantity of chocolate supplied by producers

C – quantity of chocolate purchased by the government 

4 – Many local governments use parking meters on crowded downtown streets.  However, the parking spaces along the street are typically hard to find because the metered price is often set below the market price.  Explain what happens when the local governments set the meter price too low.  Why do you think the price is set below the market-clearing price?

5 – Examine the following graph, showing market for low-skill laborers.  How many low-skill laborers will be unemployed when the minimum wage is $8 an hour?  How many low-skill workers will be unemployed when the minimum wage is $6 an hour?

6 – The demand and supply curves that we use can also be represented with equations.  Suppose that the demanded for low-skill labor, Q_D, is represented by the following equation, where W is the wage rate:

Q_D = 53,000,000 – 3,000,000 W

The supply of low-skill labor, Q_S, is represented by the equation

Q_S = -10,000,000 + 6,000,000 W

     A – Find the equilibrium wage. 

     B – Find the equilibrium quantity of labor.

     C – What happens if the minimum wage is $8?   Does this cause a surplus or a shortage?

     D – What happens if the minimum wage is $6?   Does this cause a surplus or shortage?

7 – Explain how consumer surplus is derived from the difference between the willingness to pay and the market-equilibrium price. 84 – How do economists define efficiency?

8 – A college student enjoys eating pizza.  Her willingness to pay for each slice is shown in the following table:

     A – If a pizza slice costs $3 each, how many slices will she buy?  How much consumer surplus will she enjoy?

     B – If the price of slices falls to $2, how much consumer surplus will she enjoy?

9 – Andrew paid $30 to buy a potato cannon, a cylinder that shoots potatoes hundreds of feet.  He was willing to pay $45.  When Andrew’s friend Nick learns that Andrew bought a potato cannon, he asks Andrew if he will sell it for $60, and Andrew agrees.  Nick is thrilled, since he would have paid Andrew up to $80 for the cannon.  Andrew is also delighted.  Determine the consumer surplus from the original purchase and the additional surplus generated by the resale of the cannon.

10 – If the government wants to minimize the deadweight loss of taxation, which of the following items are good candidates for an excise tax? Why?

A – bottled water

B – prescription drugs

C – oranges

D – batteries

E – luxury cars

11 – A new medical study indicates that eating blueberries help prevent cancer.  If the demand for blueberries increases, what will happen to the size of the consumer and producer surplus?  Illustrate your answer by shifting the demand curve appropriately and labeling the new and old areas of consumer and producer surplus.

12 – The cost of many electronic devices that has fallen appreciably since they were first introduced.  For instance, computers, cell phones, microwaves, and calculators not only provide more functions but do so at a lower cost.  Illustrate the impact of lower production costs on the supply curve.  What happens to the size of the consumer and producer surplus?  If consumer demand for a cell phones is relatively elastic, who is likely to benefit the most from the lower production costs.