Answer these questions

Part 2. Answer 5 of the following 6 questions. Each correct answer is 11 points. 1. What will happen to the equilibrium price and quantity in the fresh seafood market if each of the following events occur: (a) a scientific report is issued saying that fish contains mercury, which is toxic to humans; and (b) the price of diesel fuel used in fishing fleets falls significantly? 2. Suppose market demand and supply for honey are given by: Qd - 40 - 2 P; Qs - -10+3 P; where Qs is quantity supplied, Qd is quantity demanded, and P is the price per kg. a) Find the equilibrium price and quantity. b) Explain what happens if the government imposes a subsidy on honey to encourage its consumption. You do not need to solve numerically. c) Does it matter if the subsidy is given to producers or consumers? 11The current price of a share of a particular stock listed on the New York Stock Exchange is $39. The following probability distribution shows how the price per share is expected to change over a three-month period: Stock Price Change ($) Probability 0.05 0.10 0.25 + 0.20 +2 0.20 +3 0.10 +4 0.10 a. Construct a spreadsheet simulation model that computes the value of the stock price in 3 months, 6 months, 9 months, and 12 months under the assumption that the change in stock price over any 3-month period is independent of the change in stock price over any other 3-month period. b. With the current price of $39 per share, simulate the price per share for the next four 3-month periods. What is the average stock price per share in 12 months? What is the standard deviation of the stock price in 12 months? C. Based on the model assumptions, what are the lowest and highest possible prices for this stock in 12 months? Based on your knowledge of the stock market, how valid do you think these prices are? Propose an alternative to modeling how stock prices evolve over 3-month periods.__J._____ 10. Suppose that the risk-free rate of interest is 0.07 and the expected rate of return on the market portfolio is 0.14. The standard deviation of the market portfolio is 0.12. (a) According to the CAPM, what is the eicient way to invest with an expected rate of return of 0.11? (b) What is the risk (standard deviation) of the portfolio in part (a)? A study conducted by Card and Krueger [1994) compared the employment of fast food restaurant workers in New Jersey and Pennsylvania a few months before and a few months after New Jersey passed a law increasing the minimum wage in that state. This was a "difference-in-differences\" study: they compared the change in employment in New Jersey restaurants before and after the date of New Jersey's minimum wage increase, with the change in employment during the same period in Pennsylvania. a. Explain why the authors compared the change in employment in both states, instead of just looking at the before-after change in employment in New Jersey, where the minimum wage was increased. How does collecting data on what happened in a neighboring state that did not increase the minimum wage help us understand the effects of New Jersey' 5 minimum wage? Card and Krueger found that employment in New Jersey's fast food industry increased relative to Pennsylvania's fast food industry after the increase in the minimum wage. Explain what the perfectly competititive labor markets theory would predict that would happen to employment when there is an increase in the minimum wage. Does Card and Krueger's nding support or contradict the theory? Explain at least one possible explanation for why the derence-in-dijferences strategy implemeted by Card and Krueger for estimating the effects of the minimum wage could be problematic