Supply, demand and government policies; Consumers, producers and the efficiency of markets;
Externalities
1. Using the outline below, draw a circular-flow diagram representing the interactions between
households and firms in a simple economy. Explain briefly the various parts of the diagram.
2. Using a supply and demand diagram, show a labor market with a binding minimum wage. Use the
diagram to show those who are helped by the minimum wage and those who are hurt by the minimum wage.
3. Graphing:
A: What is the difference between a “change in supply” and a “change in quantity supplied?” Graph
your answer
B: For each of the following changes, determine whether there will be a change in quantity supplied
or a change in supply.
i. a change in input costs
ii. a change in producer expectations
iii. a change in price
iv. a change in technology
v. a change in the number of sellers
4. The Coase theorem suggests that efficient solutions to externalities can be determined
through bargaining. Under what circumstances will private bargaining fail to produce a solution?
5. The assignment should be in Times New Roman 12-point font.