Q 1: A case study on Page 121 of the text book, discusses the minimum-wage law.

a. Suppose the minimum wage is above the equilibrium wage in the market for unskilled

labour. Using a supply-and-demand diagram of the market for unskilled labour, show the market wage, the number of workers who are employed, and the number of workers who are unemployed. Also show the total wage payments to unskilled workers.

b. Now suppose the provincial government proposes an increase in the minimum wage. What effect would this increase have on employment? Does the change in employment depend on the elasticity of demand, the elasticity of supply, both elasticities, or neither?

Q 2: Government decides that Canada should reduce air pollution by reducing its use of gasoline. It imposes a $0.50 tax for each litre of gasoline sold.

a. Should it impose this tax on producers or consumers? Explain carefully, using a supply-and-demand diagram.

b. If the demand for gasoline were more elastic, would this tax be more effective or less effective in reducing the quantity of gasoline consumed? Explain with both words and a diagram.