ONLINECO 

Chapter 6. Exercises 7-11. Supply, Demand, and Government Policies.

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7. Congress and the president decide that the United States should reduce air pollution by reducing its use of gasoline. They impose a $0.50 tax for each gallon of gasoline sold.A. Should they impose a this tax on producers or consumers? Explain carefully using a supply-and-demand diagram. b. If the demand for gasoline were more elastic, would this tax be more effective in reducing the quantity of gasoline consumed? Explain with both words and a diagram? c. Are consumers of gasoline helped or hurt by this tax? Why? d. Are workers in the oil industry helped or hurt by this tax? Why?

 

8. A case study in this chapter discusses the federal minimum-wage law.A. Suppose the minimum wage in the market for unskilled labor. Using a supply-and-demand diagram of the market for unskilled labor, show the market wage, the numbers of workers who are employed, and the number of workers who are unemployed. Also show the total wage payments to unskilled workers. b. Now Suppose the secretary of labor proposes an increase have in the minimum wage. What effect would this increase have on employment? Does the change in employment depend on the elasticity of demand, the elasticity of supply, both elasticities, or neither? c. What effect would this increase in the minimum wage have on unemployment? Does the charge in unemployment depend on the elasticity of demand, the elasticity of supply, both elasticities, or neither? d. If the demand of unskilled labor were inelastic, would the proposed increase in the minimum wage raise or lower total wage payments to unskilled workers? Would you answer change if the demand for unskilled labor were elastic?

 

9. Consider the following Policies, each of which is aimed at reducing violent crime by reducing violent crime by reducing the use of guns. Illustrate each of these proposed policies in a supply-and-demand diagram of the gun market. A. a tax on gun buyers. B. A tax on gun sellers. C. A price floor on guns. D. A tax on ammunition.

 

10. The U.S. government administers two programs that affect the market for cigarettes. Media campaigns and labeling requirements are aimed at making the public aware of the dangers of cigarette smoking. At the same time, the Department of Agriculture maintains a price support program for tobacco farmers, which raises the price of tobacco above the equilibrium price.A. How do these two programs affect cigarette consumption? Use a graph of the cigarette market in your answer. b. What is the combined effect of these two programs on the price of cigarettes? c. Cigarettes are also heavily taxed. What effect does this tax have on cigarete consumption?

 

11. A subsidy is the opposite of a tax. With a $0.50 tax on the buyers of ice-cream cones, the government collects $0.50 for each cone purchased; with a $0.50 subsidy for the buyers of ice-cream cones, the government pays buyers $0.50 for each cone purchased.A. Show the effect of a $0.50 per cone subsidy on the demand curve for ice-cream cones, the effective price received by sellers, and the quantity of cones sold.