. Be neat and show all your work. No hand-written graphs. Note

. Be neat and show all your work. No hand-written graphs. Note that you must upload your answers before the due time November 21st, 11:59pm.

. Be neat and show all your work. No hand-written graphs. Note that you must upload your answers before the due time November 21st, 11:59pm.

Name: __________________________________________________________________

(20 points)

(a) (5 points) Is there a difference between wealth and income? If so, is this difference relevant? If not, what is the advantage in having these measures be similar? Explain.

(b) (5 points) Why is it important to provide poverty programs? From common poverty programs such as Medicaid, SNAP, EITC, etc., which one do you like best (consider from the incentives)? Explain.

(c) (10 points) What is the potential impact of income taxes on labor (consider the income effect and substitution effect)? Do you think it would be better to have a proportional income tax (flat tax) or progressive income tax? Explain.

(40 points)

Indiana is considering raising the minimum wage

(6 points) Provide a definition for a firm’s demand for labor? How does this differ between a firm in a perfect competitive output market and a firm with a monopoly in the output market.

(6 points) Let us now turn to the labor market for grocery store workers in Westphalia, Indiana. Recently one of the last two grocery stores in Westphalia closed leaving only one employer for grocery store workers in this area. What type of market structure is this?

(6 points) Draw a typical supply curve (i.e. average expenditure), marginal expenditure, and demand for the grocery store in Westphalia. Label the equilibrium wage and number of grocery store workers.

(6 points) Suppose that Indiana increases the minimum wage, which all of Westphalia’s grocery store worker are subject to. Show what the net effect on the equilibrium wage and number of workers is.

(6 points) Suppose that some time has passed, and the population has grown in Westphalia and there are now many grocery stores. Now suppose that the grocery store workers unionize. Draw a graph to depict the equilibrium wage and number of workers in this new market.

(6 points) Where would the Westphalia Grocery Union want the wages to be? Is there more than one wage to consider?

(4 points) Would you consider raising the minimum wage? Why or why not? Your answer will be based on how critically you analyze and use the information we have gone over in class thus far.

(40 points)

Provide a brief explanation to the following. Note that each part is independent of each

other.

(10 points) Why would crowd-out be a concern when examining the public provision of public education? What would be a potential solution to the crowd out problem?

(10 points) What are corrective taxes? Why do economists prefer them to regulations as a way to protect the environment from pollution? What would be the potential impact if government issuing pollution permit instead?

(20 points) China is a major producer of grains, such as wheat, corn, and rice. Some years ago, the Chinese government, concerned that grain exports were driving up food prices for domestic consumers, imposed a tax on grain exports. Draw the graph that describes the market for grain in an exporting country. How does an export tax affect domestic grain prices? How does it affect the welfare of domestic consumers, the welfare of domestic producers, and government revenue?