QUESTION $1$

$1.$ Consider the following supply and demand curves:

Demand: Price $=150-3$Q$-\mathrm{.}5*$Income$-$Pj

Supply: Price $=2*$Q$+\mathrm{.}25$L

Suppose income, I, is $60,$ the price of good j$,$ Pj$,$ is $0,$ and L$,$ the cost of labor, is $120.$ Using this information, solve for the equilibrium price.

$10$ points

QUESTION $2$

$1.$ Use the information from question $1$ to solve for the equilibrium quantity.

$10$ points

QUESTION $3$

$1.$ Suppose now the government introduces a price floor of $90.$

Would this price restriction create a surplus or shortage?

Surplus

Shortage

Neither

$10$ points

QUESTION $4$

$1.$ Find the quantity of the good demanded under the price restriction.

$10$ points

QUESTION $5$

$1.$ Find the consumer surplus. Make sure to use the same pice restriction.

$10$ points

QUESTION $6$

$1.$ Find the producer surplus.Make sure to use the same pice restriction.

$10$ points

QUESTION $7$

$1.$ What percent of the total surplus is lost due to the price floor? Be sure to multiply your answer by $100.$

$10$ points

QUESTION $8$

$1.$ Suppose now the cost of labor is increasing, by how much would labor costs have to increase for the price floor to no longer be binding?

$10$ points

QUESTION $9$

$1.$ With the new labor costs, briefly describe why it would make sense for the constraint $($i$.$e$.,$ the price floor$)$ to no$-$longer be binding.