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Chapter 9: Public Ownership (page 327)
What is 1 advantage of public ownership?
economies of scale
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About 100 million pounds of jelly beans are consumed in the United States each year, and the price has been about 50 cents per pound. However, jelly bean producers feel that their incomes are too low and have convinced the government that price supports are in order. The government will therefore buy up as many jelly beans as necessary to keep the price at \(1 per pound. However, government economists are worried about the impact of this program because they have no estimates of the elasticities of jelly bean demand or supply.
a. Could this program cost the government more than \)50 million per year? Under what conditions?Could it cost less than \(50 million per year? Under what conditions? Illustrate with a diagram.
b. Could this program cost consumers (in terms of lost consumer surplus) more than \)50 million per year? Under what conditions? Could it cost consumers less than $50 million per year? Under what conditions? Again, use a diagram to illustrate.
What are the features of privatization when being implemented on a state owend firm?
Currently, the social security payroll tax in the United States is evenly divided between employers and employees. Employers must pay the government a tax of 6.2 percent of the wages they pay, and employees must pay 6.2 percent of the wages they receive. Suppose the tax were changed so that employers paid the full 12.4 percent and employees paid nothing. Would employees be better off?
What is the difference between demand for labor and supply of labor?
From time to time, Congress has raised the minimum wage. Some people suggested that a government subsidy could help employers finance the higher wage. This exercise examines the economics of minimum wage and wage subsidies. Suppose the supply of low-skilled labor is given by
LS= 10w
where, LS is the quantity of low-skilled labor (in millions of persons employed each year), and w is the wage rate(in dollars per hour). The demand for labor is given by
LD= 80 - 10w
a. What will be the free-market wage rate and employment level? Suppose the government sets a minimum wage of \(5 per hour. How many people would then be employed?
b. Suppose that instead of a minimum wage, the government pays a subsidy of \)1 per hour for each employee. What will the total level of employment be now? What will the equilibrium wage rate be?
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