Principles of Economics W1105x-1 (Gulati) Fall 2013 PS #1: September 13, 2013 DUE: September 19, 2013

General Problem Set Guidelines 1. No late problem sets will be accepted under any circumstances. Problem sets are due at the beginning of the lecture listed above. 2. The TAs will read and grade 200+ problems sets. Write legiblyor risk the consequences. 3. There are no challenges to problem set grades. 4. All solution sets must be submitted on 8 x 11 paper. 5. You may work in pairs. No partner changes during the term. Make sure you put your name(s), UNI(s) and section number (of either partner) on the top page of your solution set. For section number, indicate the relevant section # (from the list below) that you are attending. Problem sets will be returned in sections. You do not need to attach a copy of this sheet, but you must staple pages together if your solution set contains multiple sheets. 6. Problem sets are worth 5 points each and will be graded on a + (5 points), (3 points), - (1 point) and 0 basis. Solution sets will be posted at Courseworks one day after due dates. While you are free to discuss with classmates, you must submit your own solutions. Simply copying another students work is cheating. Columbias policy on academic integrity is available at CU Academic Integrity. Section 1 2 3 4 5 6 7 8 9 Day Tuesday Tuesday Wednesday Wednesday Wednesday Thursday Thursday Friday Friday Time 12:00-12:50 5:10-6:00 4:10-5:00 5:10-6:00 6:10-7:00 4:10-5:00 6:10-7:00 10:00-10:50 11:00-11:50 Room 224 Pupin 337 Mudd 425 Pupin 224 Pupin 222 Pupin 424 Pupin 601B Life Sciences 407 Hamilton 407 Hamilton Instructor Meiping Sun Meiping Sun Ajin Lee Ajin Lee Nicole Dussault Adam Stansell Jesse Garrett Ashna Arora Ashna Arora

1. Proposals have been made to increase government regulation of firms providing childcare services by, for instance, set-ting education requirements for childcare workers. Suppose that these regulations increase the quality of childcare and cause the demand for childcare services to increase. At the same time, assume that complying with the new government regulations increases the costs of firms providing childcare services. Draw a demand and supply graph to illustrate the effects of these changes in the market for childcare services. Briefly explain whether the total quantity of childcare services purchased will increase or decrease as a result of regulation. 2. Suppose that you have been hired to analyze the impact on employment from the imposition of a minimum wage in the labor market. Further suppose that you estimate the demand and supply functions for labor, where L stands for the quantity of labor (measured in thousands of workers) and W stands for the wage rate ( measured in dollars per hour): Demand: LD = 100 - 4W; Supply: LS = 6W. First, calculate the free market equilibrium wage and quantity of labor. Now suppose the proposed minimum wage is $ 12. How large will the surplus of labor in this market be? 3. The publisher of a magazine gives his staff the following information: Current price $ 2.00 per issue Current sales 150,000 copies per month Current total costs $ 450,000 per month He tells the staff, Our costs are currently $ 150,000 more than our revenues each month. I propose to eliminate this problem by raising the price of the magazine to $ 3.00 per issue. This will result in our revenue being exactly equal to our cost. Do you agree with the publishers analysis? Explain. 4. On Tuesday, June 28, 2005, the New York Mets and the New York Yankees played baseball at Yankee Stadium. Both teams were in pursuit of league championships. Tickets to the game were sold out, and many more fans would have attended if more tickets had been available. On that same night, two bottom-ranked teams, the Toronto Blue Jays and the Tampa Bay Devil Rays, played one another and sold tickets to only 8,545 people in Tampa. The Devil Rays stadium, Tropicana Field, holds 43,772. Yankee Stadium holds 57,478. Assume for simplicity that tickets to all regular-season games are priced at $35. a. Draw supply and demand curves for the tickets to each of the two games. (Hint: Supply is fixed. It does not change with price.) Draw one graph for each game. b. Is there a pricing policy that would have filled the ballpark for the Tampa game? If the Devil Rays adopted such a strategy, would it bring in more or less revenue? c. The price system was not allowed to work to ration the New York tickets when they were initially sold to the public. How do you know? How do you suppose the tickets were rationed?