1.a State the "Law of Demand" 5 pts

b Look at these

Graph 3

XX

Graph 4

graphs:

In graph 3 a higher price results in a higher quantity, in graph 4 a lower

price results in a lower quantity. This means the "law of demand" is

disproven.

1 Do you agree? Why or why not?

10 pts

2. Let's say that the prevailing wage rate is $15. You(the Queen or

King) are thinking of proposing a minimum wage of $20 or $10.

a. Is the $20 proposal a price ceiling or floor? Is the $10 proposal a

price ceiling or floor? 10 pts

b. Who is the buyer and seller? (demand curve, supply curve)? 5pts

c. What would be the result of both policies. Le.would this result in a

surplus or shortage, and what would you call this? 5 pts.

3. Suppose that air pollution is a problem.

a. Describe a "cap and trade" policy as a possible solution 8 pts

b What, if any, externalities are addressed by this program. Include in

your explanation whether these are positive or negative, and how the

policy ameliorates them.

+12 pts

cWhat might be some drawbacks to this policy? 5 pts extra credit

Your answers to the above should be complete enough to answer the

question. You can use verbal, graphical, mathematical explanations in

your answer. Your answer to #3 a, should be at least 125 words. You

may use other sources, please note them. The text treatment of all the

above is sufficient.