9. In Maine, you must have a license to harvest lobster commercially; these licenses are issued yearly. The state of Maine is concerned about the dwindling supplies of lobsters found off its coast. The state fishery department has decided to place a yearly quota of 80,000 pounds of lobsters harvested in all Maine waters. It has also decided to give licenses this year only to those fishermen who had licenses last year. The accompanying diagram shows the demand and supply curves for Maine lobsters.

a. In the absence of government restrictions, what are the equilibrium price and quantity?

b. What is the demand price at which consumers wish to purchase 80,000 pounds of lobsters?

c. What is the supply price at which suppliers are willing to supply 80,000 pounds of lobsters?

d. What is the quota rent per pound of lobster when 80,000 pounds are sold? Illustrate the quota rent and the deadweight loss on the diagram.

e. Explain a transaction that benefits both buyer and seller but is prevented by the quota restriction.

#!#10. The Venezuelan government has imposed a price ceiling on the retail price of roasted coffee beans. The accompanying diagram shows the market for coffee beans. In the absence of price controls, the equilibrium is at point E, with an equilibrium price of PE and an equilibrium quantity bought and sold of QE.

a. Show the consumer and producer surplus before the introduction of the price ceiling. After the introduction of the price ceiling, the price falls to PC and the quantity bought and sold falls to QC.

b. Show the consumer surplus after the introduction of the price ceiling (assuming that the consumers with the highest willingness to pay get to buy the available coffee beans; that is, assuming that there is no inefficient allocation to consumers).

c. Show the producer surplus after the introduction of the price ceiling (assuming that the producers with the lowest cost get to sell their coffee beans; that is, assuming that there is no inefficient allocation of sales among producers).

d. Using the diagram, show how much of what was producer surplus before the introduction of the price ceiling has been transferred to consumers as a result of the price ceiling.

e. Using the diagram, show how much of what was total surplus before the introduction of the price ceiling has been lost. That is, how great is the deadweight loss?

#!#11. The accompanying diagram shows data from the U.S. Bureau of Labor Statistics on the average price of an airline ticket in the United States from 1975 until 1985, adjusted to eliminate the effect of inflation (the general increase in the prices of all goods over time). In 1978, the United States Airline Deregulation Act removed the price floor on airline fares, and it also allowed the airlines greater flexibility to offer new routes.

a. Looking at the data on airline ticket prices in the diagram, do you think the price floor that existed before 1978 was binding or nonbinding? That is, do you think it was set above or below the equilibrium price? Draw a supply and demand diagram, showing where the price floor that existed before 1978 was in relation to the equilibrium price.

b. Most economists agree that the average airline ticket price per mile traveled actually fell as a result of the Airline Deregulation Act. How might you reconcile that view with what you see in the diagram?

#!#12. Many college students attempt to land internships before graduation to burnish their resumes, gain experience in a chosen field, or try out possible careers. The hope shared by all of these prospective interns is that they will find internships that pay more than typical summer jobs, such as waiting tables or flipping burgers.

a. With wage measured on the vertical axis and number of hours of work on the horizontal axis, draw a supply and demand diagram for the market for interns in which the minimum wage is non-binding at the market equilibrium.

b. Assume that a market downturn reduces the demand for interns by employers. However, many students are willing and eager to work in unpaid internships. As a result, the new market equilibrium wage is equal to zero. Draw another supply and demand diagram to illustrate this new market equilibrium. As in Figure 5-7, include a shaded triangle that represents the deadweight loss from the minimum wage. Using the diagram, explain your findings.

#!#13. Suppose it is decided that rent control in New York City will be abolished and that market rents will now prevail. Assume that all rental units are identical and so are offered at the same rent. To address the plight of residents who may be unable to pay the market rent, an income supplement will be paid to all lowincome households equal to the difference between the old controlled rent and the new market rent.

a. Use a diagram to show the effect on the rental market of the elimination of rent control. What will happen to the quality and quantity of rental housing supplied?

b. Use a second diagram to show the additional effect of the income-supplement policy on the market. What effect does it have on the market rent and quantity of rental housing supplied in comparison to your answers to part a?

c. Are tenants better or worse off as a result of these policies? Are landlords better or worse off? Is society as a whole better or worse off?

d. From a political standpoint, why do you think cities have been more likely to resort to rent control rather than a policy of income supplements to help low-income people pay for housing?