1. Suppose scientists discover that eating soybeans prevents cancer and heart disease.

Answer the following questions with demand and supply analysis. Draw a graph to

illustrate your answer and briefly explain it in words.

a) What effect would you predict on the price of soybeans?

Based on the graph, there will be an increase in the price of Soybean since there will be a

significant increase in the demand for Soybean from D0 to D1. Thus, this aspect will as well lead

to the rise in the equilibrium price, which is indicated in the graph as P0 to P1. The rise in

equilibrium price also reflects the increase in quantity from Q0 to Q1. Therefore, the overall

price for the Soybean is likely to increase.

on land suitable for growing soybeans)?

Based on the graph, there is going to be a decrease in the price of corn. In other words, since

both soybean and feed corn can be substituted, when the demand for soybean increases, it, as a

result, leads to lower demand for products related to feed corn. Thus, there is a shift in the feed

corn demand curve to the left, i.e., from D0 to D1, as indicated. Based on that, the resulting

effect is the decrease in equilibrium price, i.e., from P0 to P1 as indicated, and equilibrium

quantity decreases from Q0 to Q1.

2. Demand and supply analysis questions with a graph to illustrate the answer and a

brief explanation.
 a. If the city council passes an ordinance requiring all apartment owners in a

particularly congested area to provide one off-street parking place for each

apartment they rent out. What effect would you predict on the level of rents in that

area and on the number of apartment units being rented?

Looking at the above graph based on the apartment market, the initial equilibrium takes place at

point E1. Thus, the provision of all apartment owner’s off-street parking will as well lead to an

increase in the production cost. This aspect will, as a result, lead to the shift in the supply curve

towards the left side, forming a new equilibrium point of E2. Consequently, the price will rise

from P1 to P2, a factor that will as well lead to the decrease in equilibrium quantity from Q1 to

Q2, as indicated above.

b. If the city council did not require the provision of parking spaces but simply

prohibited all on-street parking on the streets in this congested area, what effect
 would you predict on the level of rents in the area and on the number of apartments

units being rented?

Due to on-street parking being prohibited, there will be a decrease in demand for the

apartments. This decrease will be based on the challenges of lack of parking space, an aspect
 that will as well lead to the shift of the demand curve to the left. Therefore, there will be a

fall in the equilibrium quantity as well as the price of the rented apartments.

3. If the supply of turkeys in a particular November turned out to be unusually small,

what do you think a turkey shortage would result? Why or why not?

When the supply of turkey reduces, the supply curve will automatically shift leftwards hence

shifting the equilibrium price high. When at a high equilibrium price, as its new position, it

will lead to a reduction in demand as the price increases. Thus, the turkey’s demand would

generally reduce. Most individuals’ demand for turkey would be less when the price is high.

Many people who loved buying turkey would be affected by the price and will be unable to

purchase it.

4. The rent-control ordinances that cities sometimes enact usually try to restrict rent

increases to the amount of the owners’ cost increases. Use the analysis of this

chapter in thinking about the following questions.

a. What is the cost to a landlord renting an apartment to you for $500 if someone else

is willing to pay $600? What is the benefit of renting to you?

A property owner of an apartment cannot increase the rent when the law is set by the city

authority prohibiting him from doing so. When a tenant is occupying an apartment while paying

$500 as rent, the law does not allow the owner to charge more than that amount if it is indeed a

stipulated amount. However, if the tenant is might have occupied the house before such laws

were implemented, then the landlord is at liberty to do as he wishes. The landlord has no

obligation on an occasion when he is offered $600 as rent for such an apartment due to the set

laws by the city authority. When someone is willing to offer $600 instead of $500, the net profit
becomes $100. According to economists, such results are classified into cost and benefits

categories, aspects that are as well connected to demand and supply classification.

b. What effect will a rent-control ordinance have on the cost to landlords of letting an

apartment unit stand idle, or of using it themselves, or of allowing relatives to live in

it rent-free?

When the apartment’s rent is set at a lower rate by the rent control authorities, the maintenance

cost becomes high for the apartment owner since they do not receive rent incentives. Thus, due

to the controlled rent, renting the apartment turn to be a loss and does not profit the owner.

Hence, the owner has a choice to give the apartment to his relatives or use it by himself for free,

or even he may decide to let the apartment idle. Therefore, this approach is likely to lead to a

decline in the cost of all activities related to such business.

c. What concept of cost do you think supporters of rent controls have in mind when

they speak of basing maximum rents on landlords’ costs?

When speaking of basing maximum rents on property owner’s costs, rent control department

supporters think there is an increase in the marketing clearing rent. This perspective means that

middle-class individuals cannot afford such high rent, an aspect that supporters might seem to

base on in their thinking (out-of-pocket expenses). Supports think that due to the rent being

uncontrolled, middle clad people might be unwilling to rent the apartment since no object cost

independently exists from demand. Therefore, this is the reason why supporters cannot avoid

thinking about the low class when enacting laws related to controlled rent.

5. Many people think the government should increase the minimum wage to help

workers.
 a. Do you think unskilled workers as a whole—and perhaps even society as a whole—

would be better off if the minimum wage were increased to $20 per hour? Why or

why not?

When the minimum wage becomes lower than $20, if the labor market is perceived to be in

equilibrium, there will likely be a surplus of labor when the minimum wage is imposed above the

existing equilibrium wage. This aspect is based on the fact that a lot of workers will, as a result,

be willing to do the job, causing an increase in employees supply and a decrease in their demand

because of the high wage rate. When the increase in labor supply raises the demand for labor, it

leads to unemployment of many of the works, which negatively affects society as a whole.

b. Unions often call for higher minimum wages, even though unions represent skilled

workers and therefore do not directly benefit from a minimum-wage increase.

Recalling from Chapter 3 how an increase in the price of a substitute good will tend

to raise the demand for the good in question, can you make an argument that wages

for union members will tend to increase when the minimum wage for unskilled,

non-union labor is increased?

On most occasions, besides comprising of skilled workers, unions always advocate for high

minimum wages. This aspect of cause has led to many firm owners opting to hire unskilled

workers who are usually available for lower wages. What owners only need is to train such

unskilled individuals based on their production processes. However, after such unskilled

workers are successfully absorbed into production processes, they as well embark on

advocating for a hike in nominal wages, just like skilled workers, an aspect that forces their

employers to increase their wages.

Williams argues it is a direct effect of minimum-wage legislation. Can you construct

the argument?

The increases in youth unemployment, particularly black youth, can in one way or the other

be attributed to marginalization and racial differences. Most youth usually fail to secure

employment based on issues like not being related to someone in a more prominent position

or even being of a different race to the employer. Based on the arguments by William, such

issues are related to the current minimum-wage legislation.

6. Jake is considering opening a “Yumburger” stall in the food court of a local

shopping Centre. He expects the total revenue to be $130,000 per year. The expected

expenses are:

- Rent: $10,000

- One part-time helper’s wage: $20,000

- Utilities: $5,000

- Interest on bank loans: $5,000

- Cost of raw materials: $40,000

To run this business, Jake has to quit his current job, which pays an annual salary of

$40,000. Based on the information above, answer the following questions:

a) What are the expected explicit costs?

The expected explicit cost can be attained by accumulating Rent, utilities, cost of raw

material, bank loan interest and other personal wages, calculates follows;

$10,000 + $40,000 + $5,000 + $20,000 + $5,000 = $80,000

b) What is Jake's expected accounting profit?

revenue as calculated below;

$130,000 - $80,000 = $50,000

c) What are the expected economic costs?

Jake’s expected economic cost is equivalent to the annual salary, which is $40, 000

d) What is Jake's expected economic profit?

Jake’s expected economic profit can be attained when the sum of explicit cost and the

implicit cost is subtracted from the total revenue as calculated below;

$130,000 – ($80,000 + $40,000) = $10,000

e) Do you think it is a good idea for Jake to run this business? Why?

Based on his expected accounting profit of $50,000 and a $10,000 economic profit, the

outcome of this business surprises half of his explicit cost. This aspect means that this is a

profitable business to venture into, and he should consider running it.

7. Consider this simplified sequence: A farmer starts with a unit of wheat and sells it

to a miller for 20 cents. The miller grinds it into flour and sells it to a baker for 50

cents. The baker converts all the flour into a loaf of bread and sells it to a grocer for

$2.00. The grocer then sells that bread to a customer for $3.35.

a. What is the total value added by the grocer?

3.35 -2 = 1.35

b. What is the total value added by all these stages of production?

3.35-0.2 = 3.15

c. How much does GDP increase?

0.2 + 0.5 + 2 + 3.35 = 6.06

a. He frequents employment agencies, reads want ads and follows up leads on tool-

and-die–making jobs for two weeks. Is he unemployed (as officially defined) during

this time?

He is indeed unemployed, and his employment type can be termed as frictional, whereby the

unemployment period is equivalent to the time taken while unemployed and searching for a

job.

b. At the end of two weeks, he is offered a job driving a bread truck that pays $9 an

hour. He turns it down. Is he unemployed?

He is unemployed since paying workers below their actual productivity is a form of disguised

employment that cannot be officially considered a form of employment.

c. He receives an offer of a job as a tool-and-die maker in a city 125 miles away. He

turns it down because his teenage children do not want to change high schools. Is he

unemployed?

He is voluntarily unemployed based on the fact that he willingly turned down the job offer.

However, based on the country’s labor forces, he is not actually unemployed and not

accounted for among jobless individuals.

d. After three months of searching, Jones becomes discouraged and quits looking. Is he

unemployed?

In official employment terms, when an individual goes through a process of searching for

employment for at least four weeks and still looking for a job, he or she is termed

unemployed. Therefore, Jones is as well unemployed.