Question

6.

Immigration is part and parcel of living in Canada; indeed, one of five Canadian

residents was born in a foreign country. Given that immigration is likely to continue,

what field would you rather work in: one in which the elasticity of demand for your

labour is high, or one in which it is low? Explain. (10%)

7.

Use the following supply and demand equations.

Supply:

p

= 4 + 3

q

.

Demand:

p

= 2

,

132

−

q

.

Use these equations to respond to the following questions.

(a) What is the market equilibrium? (4%)

(b) Under the market equilibrium, what is Total Surplus? (4%)

(c) Suppose the government enacts a price ceiling of ̄

p

= 2

,

000. What is Producer

Surplus, Consumer Surplus, Total Surplus, and Deadweight Loss? (4%)

(d) Instead, suppose that the government enacts a price ceiling of ̄

p

= 1

,

100. What

is Producer Surplus, Consumer Surplus, Total Surplus, and Deadweight Loss? (4%)

(e) Under a price ceiling of ̄

p

= 2

,

000, what is the Shortage? What if ̄

p

= 1

,

100?

(4%)

8.

In 301 AD, the Roman emperor Diocletian issued his “Edict on Maximum Prices,”

which imposed price ceilings on various goods across the Roman empire: beef, beer,

wine, shoes, lions, silk, etc. As a result, merchants either stopped producing goods, or

sold goods illegally.

1

Based on economic theory, would you expect such a result? Briefly

explain, using a diagram. (15%)

9.

The Ontario government has wage controls for medical doctors. To keep the analysis

simple, assume that they set one wage for all doctors: $100,000 per year. It takes roughly

6 years

Answer 1

6).

A worker will like to work in a market in which it has greater bargaining power. A market with high elasticity of demand for labor implies that a 1% increase in wage rate will decrease the demand for labor by more than 1% whereas a market with low elasticity of demand for labor implies that a 1% increase in wage rate will decrease the demand for labor by less than 1%. So this means that a worker has more bargaining power in the market with lower elasticity of demand for labor and hence he should work in the market with lower elastic demand.