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ECNU 116 Principles of Microeconomics Professor Wang Problem Set 4

1. Read the “For Inquiring Minds” story of “Price floors and School Lunches” on page 129. When you were in grade school, did your school offer free or very cheap lunches? If so, did you school offer a lot of fresh vegetables and fruit, or a lot of corn, beef, or dairy products? What do you think of this story?

Answer – Yes my school offered free lunches. India’s economy is driven by agriculture and 60 percent of out nation’s output is exported. There is still a lot of excess supply in the domestic market that leads to surplus. Government gives away the entire surplus for free to public schools. However they have now started giving to the private schools as well as colleges. My school offered a lot of fresh vegetables as most of the farmers in India grow them. The market price of fruits and vegetables is very low, unlike the market price for milk and other dairy products and there is a lot more demand. I think the government is helping the nation as a lot of children suffer from malnutrition in India and fresh fruits and vegetables help them get healthy.

2. Read the “Economics in Action” story of “‘Black Labor’ in Southern Europe” on page 132. How do people in those countries evade the minimum wage floor? What do you learn from this story?

Answer – People in countries like Italy and Spain simply do not report that they are employed. Companies who are willing to pay them below the minimum wage hire them and they accept it. These people who report themselves as unemployed, collect unemployment check after complaining that the line was too long because they had to go back to “work”. Employers have also found legal ways to evade the price floor. Employers and companies, instead of growing, stay small in order to avoid paying minimum wage as regulations only force large industries to pay minimum wage. This keeps them from paying a higher wage to the laborers.

3. Read the New York rent control story as reported by the Washington Post. The story is posted as course material on the blackboard for Chapter 5. What do you think of the rent control policy in New York?

Answer – Rent control policy in New York has many advantages and disadvantages to the tenants as well as the landlords. If rent control were kept on a particular building in Manhattan, people would be able to afford living in the big apple. However the problem is greed. There is so much purchasing power in today’s economy that big businesses and millionaires demand putting up their offices and their apartment in the city itself. This gives the Landlord an incentive to rent his apartment to a millionaire or demolish the building to make an office for a large firm. The landlord would be gifted with a lot of money, but the problem is the rent control policies that keep tenants in the apartment. This gives the landlord an incentive to not maintain the building and it all leads to a poor quality of life in the city. I think that rent control policies should not be in effect as people would enjoy a much better quality of life in the suburbs and the landlords would also stay happy by giving the apartment for rent at a much higher price.

4. Problem 4 of the textbook (p. 140). Do not try to calculate the numbers. Just show the area. For example, if the question is: How much producer surplus? Then show the area that represents the producer surplus.

5. Problem 11 of the textbook (p. 142).

NOTE: Problem 4 & 5 are written after this page. Please turn over.

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