Question 10 Consider the following (inverse) demand and supply curves for construction workers in Small City. Demand: p" = 75 -20, Supply: p* = 0.5Q The price and quantity of equilibrium are pe = 15 and Q = 30. The city decides to establish a minimum wage (in effect, a price floor) equal to p/ = 18. Do a welfare analysis comparing the equilibrium before and after the price floor. Which of the following alternatives is correct? (Assume quantities are given in thousands of hours of construction work.) (a) The price floor decreases producer surplus by approx. 88 thousand dollars (b) The price floor increases consumer surplus by approx. 85 thousand dollars (c) The price floor increases total welfare by approx. 11 thousand dollars (d) The price floor generates a shortage (excess supply) of 7.5 thousand hoursQuestion 11 Consider the same information in question 10. Assume that Small City has implemented its minimum wage and there is housing boom in a neighboring city, called Big City. Big City has a high demand for construction workers and is willing to hire as many hours of construction work as Small City can provide for a wage equal to Small City's minimum wage (p. = 18). Consider the welfare implications for the economy of Small City if it "exports labor" to Big City. Which of the following alternatives is correct? (a) Welfare of house developers in Small City (the consumers of labor) will increase (b) Welfare of construction workers in Small City (the producers of labor) will decrease (c) Welfare in Small City will increase by approx. 3 thousand dollars (d) Welfare in Small City will increase by approx. 14 thousand dollars Question 12 Consider the information in questions 10 and 11. Assume that the minimum wage was removed from Small City, but Big City is still hiring all construction workers willing to work for $18/hour. Social norm dictates that construction workers hired in Big City send some money back to their families in Small City. For each hour worked, they send back $1 in "remittances." Calculate how do these remittances, a de facto tax on exports, affect the equilibrium and welfare. Specifically, calculate the change in consumer surplus (CS) in Small City relative to the non-remittances case and how much money is sent as remittances to the workers' families in Small City. Which of the following alternatives is correct? (a) relative to the non-remittances case, CS increases by $31,250 in Small City (b) relative to the non-remittances case, CS increases by $27,000 in Small City (c) A total of $5,000 is sent as remittances to the workers' families in Small City (d) A total of $7,500 is sent as remittances to the workers' families in Small City