Question 1

Suppose bad weather decreases the quantity of wheat by 12 percent. If the price elasticity of demand for wheat is 0.6, how would the crop failure affect the price of wheat? Would the crop decrease benefit or harm wheat farmers?

Question 2 (a) Suppose there are two pizza restaurants, GoGo Pizza and RunRun Pizza. If GoGo Pizza discriminates against black workers, while RunRun Pizza employs both white and black workers, what will be the possible economic penalty for GoGo Pizza? Explain with the labor market diagram for GoGo Pizza.

(b) What externality problem do you expect in the market for plastic bags? How does the government correct the inefficiency of the market? Explain in detail.