# Explain with words 2.

I have attached PowerPoint summaries from chapters 5-8 of our textbook since I could not copy the chapters of the textbook here. The instructions are below for the questions. Directions: The problem set answers should only contain answers. Do not retype the questions. Answers for the problem set have to be typed using 12 point black font and double spaced. All answers are to be black font, typed, including any calculations. Answers should be given in a paragraph form that provides a thorough explanation. A one sentence answer is not adequate. Even in the case of calculations, they should be explained. Graphs are to be neatly hand drawn. Graphs are to be clearly labeled Graphs are to be inserted into the paragraph of the answer The problem set answers should be considered a formal paper and should be treated as such. Failure to follow the directions can result in a reduction of points. Questions: ( Each question is worth 25 points, Format is 25 points) 1. Minimum wage has been an issue in several political elections. The current wage is \$7.25 and hour. Using the supply and demand diagram, show the equilibrium wage at the current minimum wage. Show how an increase in the minimum wage, an amount you choose, would affect the market. Be sure to clearly label and explain the graph. (25 points) 2. Congress and the President decide that the United States should reduce air pollution by reducing its use of gasoline. They impose a \$0.80 tax on each gallon of gas sold. Using a supply and demand graph, show the following. The tax needs to be shown using a shift of the supply curve. (25 points) 1. Who pay the burden of the tax? Why? Explain with words 2. Draw a graph described in part a. Label the graph including the tax burden, the consumer and producer surplus after the tax and the area of tax revenue. 3. Have consumers been helped or hurt by the tax? Why? Does the graph above show how consumers have been hurt or helped? 3. Provide an example of a negative (production) externality. Using a demand and supply graph, start at equilibrium, then show the external cost and social marginal cost of the externality. How can the government correct the situation? (25 points)

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