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```					                                             PRINCIPLES OF MACROECONOMICS
Lecture Outline for Chapter Five
September 30, 2009

Definitions:      Be able to recognize the definition of terms on page 99 that were identified in lecture.
Illustrations:             UNDERSTAND WHAT YOU ARE ILLUSTRATING!!!
Specific Supply and Demand Applications
Be able to illustrate the following:
1.       Government price controls            a.        Price ceilings   b.      Price floors
2.       Government taxation (on buyers or sellers)
a.        Impact on consumer surplus           b.       Impact on producer surplus
c.        Impact on government revenue         d.       Deadweight loss
3.       The relationship between the size of a tax and deadweight loss.
4.       The relationship between the size of a tax and tax revenue (The Laffer Curve)
5.       The minimum wage law
a.        Identify the positive impact of the minimum wage on the working poor.
b.        Identify the negative impact of the minimum wage on the working poor.

Math:
Given    a.        P = 500 - 2Q      P = 100 + 6Q                b.       P = 100 - 2Q    P = 20 + 2Q
c.        P = 300 - 3Q      P = 50 + 2Q                 d.       P = 1200 - 6Q P = 200 + 4Q
1.       Determine equilibrium price and quantity.
a.       P _____ Q _____             b.       P _____ Q _____             c.       P _____ Q _____         d.      P _____ Q _____
2.       At what price is demand equal to zero?
a.       _____              b.       _____             c.        _____            d.      _____
3.       At what price is supply equal to zero?
a.       _____              b.       _____             c.        _____            d.      _____
4.       Suppose supply of this good changes so that the supply curve is now best represented by the following equation:
a.        P = 60+ 6Q                  b.      P = 40 + 2Q
c.        P = 100+ 2Q                 d.      P = 400+ 4Q
Using the same demand curve as above,
i.       What is the new equilibrium price and quantity?
a.       P _____ Q _____             b.       P _____ Q _____             c.       P _____ Q _____         d.      P _____ Q _____
ii.      Is this an increase or decrease in supply and/or quantity supplied?
iii.     Is this an increase or decrease in demand and/or quantity demanded?
5.       Answer #4 if the demand for this good changes.
[Hint: This requires that you invent new equations for the demand curve].

6.       In each of the above markets, if the government imposed a tax on producers how much of the tax would be paid by
a.       tax = \$40        consumers?                 _____            producers?                _____
b.       tax = \$40        consumers?                 _____            producers?                _____
c.       tax = \$50        consumers?                 _____            producers?                _____
d.       tax = \$100       consumers?                 _____            producers?                _____

7.       In each of the above markets, if the government imposed a tax on consumers how much of the tax would be paid by
a.       tax = \$40        consumers?                _____             producers?               _____
b.       tax = \$40        consumers?                _____             producers?               _____
c.       tax = \$50        consumers?                _____             producers?               _____
d.       tax = \$100       consumers?                _____             producers?               _____

8.       In each of the above markets, if the government imposed the tax noted in 7a-d, what would be the size of __________ after
the tax?
a.       Consumer Surplus          b.         Producer Surplus         c.       Tax Revenue                d.       Deadweight Loss
e.       What is consumer surplus and producer surplus before the tax?

1.     What year was the federal minimum wage first instituted and what was its initial value (in nominal terms)?
2.     In what decade was the purchasing power of the minimum wage the highest?
3.     List the reasons, as offered in lecture, why economists have trouble assessing the impact of the minimum wage on the welfare
of the working poor.
4.     What is the relationship between
a.        the size of a tax and deadweight loss?
b.        the size of a tax and tax revenue?
c.        According to Arthur Laffer, if taxes are reduced what will happen to tax revenue? What must you assume for this to
be true?

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