Prof. Bryan Caplan

Econ 103

Spring, 2000


HW#4  (Please TYPE all answers).


Gwartney and Stroup:(answer all)


Chapter 9

Critical Analysis: 3, 9, 10, 12 (2-3 sentences)




Additional Required Problems(answer both)


Use supply and demand curves to analyze the following questions.  In 1-2 sentences, explain your answer.


1.  Recall that housing supply is very inelastic while housing demand is fairly elastic. 


a.  What happens to the Reston housing market when the Metro announces plans for a Reston Metro stop?


b.  What happens to the San Francisco housing market when there is a large nation-wide increase in the demand for computer programmers?  (There are a lot of programmers and computer firms in the SF area).


c.  Suppose SF has tough rent control laws.  How would your answer to (c) change?  How would it stay the same?


2.  Recall that both demand for credit and supply of credit are fairly elastic.


a.  Currently most state laws refuse to enforce credit contracts for minors (people under 18).  What does this do to the market for loans to kids?


b.  How would your answer to (b) change if there were usury laws as well?




Additional Problems

(answer 4 out of 8 - you choose which four.  Answer in 2-3 sentences, graphs optional)


1.  By working an extra hour, a farmer can produce 3 additional bushels of wheat.  If wheat sells for $10/bushel, what is the farmer's marginal product?  What happens to his marginal product if he gets stronger?  If the price of wheat falls?


2.  Suppose there are equal quantities of two kinds of labor: skilled and unskilled.  Demand for skilled labor is much higher: the market wage of skilled workers is $20, the market wage of unskilled is $3.  Diagram the effect of a $7 minimum wage on both markets.


3.  In France, unemployment is higher but real wages are lower than in the U.S.  How is this possible?


4.  Why are meals at McDonald's (a low-quality restaurant) cheaper than at the Red Lobster (a higher-quality restaurant)?


5.  Suppose the laws against sale of marijuana are weakened (for example, by paroling drug-dealers after only 3 years), while laws against use of marijuana are strengthened (for example, by imposing a 3-year mandatory minimum sentence for use).  What happens to the market for marijuana?


6.  How much time do you spending "searching for" (selecting) your classes?  Have you ever found yourself stuck in a bad class because you did not search enough?


7.  Why do insurance policies with deductibles cost less?  Give two reasons.




a.  Which class in college has given you the most job-related skills? 


b.  Which class in college has given you the least job-related skills? 


c.  What percent of the first class was "signaling" (as opposed to job-related training)?  What percent of the second class was "signaling"?