ECON 213

PROBLEM SET 2
Name: _____________________
Problem Set 2 is to be completed by 11:59 p.m. (ET) on Monday of Module/Week 4.
1. The following table presents data for wages in the market for internet security
professionals.
(HINT: in the labor market the roles are reversed. Those who want to hire labor are the
demanders. The workers enter the work force providing labor to the market place so they
are the suppliers.)
Wage

Quantity Demanded

Quantity Supplied

$50,000

20,000

14,000

$60,000

18,000

18,000

$70,000

16,000

22,000

$80,000

14,000

26,000

$90,000

12,000

30,000

What is the equilibrium wage? ___ ___$60,000________

Now, consider this scenario: Due to an increase in the internet security threats, the
government wants to apply a price control in this market to encourage more people to
become internet security professionals. Assume that a wage control is set at $75,000. Will
this increase the number of people entering this labor market? Why or why not? Will this
increase the number of people hired? Why or why not?
Yes, because people want to make more money.
No, because businesses will not hire as many people when they have to pay more for their
labor.

Page 1 of 2

ECON 213

2. Assume you are a policymaker in Washington DC. Lobbyists for the preschoolers of
America have put pressure on their representatives to cap prices on graham crackers.
You have been assigned a position on a new committee to study the impact of a price
ceiling on graham crackers.
Your job is to:
a.) Illustrate using a fully labeled supply and demand graph (label all the axes and
any lines you put in your graph) what such an artificial price looks like. On
attached document.
b.) Explain what the results of such a move are for the graham cracker market. In
other words, will there be a SHORTAGE, a SURPLUS, or neither created? Why?
There will be a shortage because consumer demand will be so high that
producers will not be able to produce the amount demanded due to a limited
amount of resources.
3. Pollution is considered by most a negative externality. Some economists would like to
see the costs of these burdens incorporated into the price of goods that we buy. For
instance, since coal fire power plants increase emissions that could potentially lead to
climate change, these economists believe that the price we pay for electricity is not
adequately high enough. Draw a completely labeled graph and illustrate on the graph
how much higher electricity prices would be if the full costs of electricity production
were taken into account. You do not need to provide actual numbers; rather, show on
the price axis where the price would be before the externality is considered and the
price after the externality is included. What problems might exist in determining this
new, externality based, price?
(Graph is on attached document)
Problems would be figuring out if people would still purchase the same amount of
electricity after externalities because a lot people have no other options; they have
no other electricity provider of means of acquiring electricity. Also, does the
externailities create external cost or external benefire for consumers and producers?
4. In the old days lighthouses were built along the coast to prevent ships from running
aground on rocks in unfamiliar ports. By shining a beam of light over a port and
guiding ships away from rocks, these vital buildings reduced the risk for ship captains
and were generally considered to be extremely valuable resources. Curiously,
lighthouses were almost always run and maintained by local governments. Explain in
economic terms why private firms would not run a lighthouse.
Lighthouses would be considered public property and the total cost of the government
running them would be cheaper than if a private firm ran the lighthouse.

Page 2 of 2