Assignment task:
For all questions be sure to explain your answers and to use graphs whenever appropriate.
1. Consider the market for a good that has a positive externality and that is produced by a monopolist. How does the amount produced in the absence of any government policy compare with the amount that would maximize the total social surplus? Identify the total private surplus, external benefits, and total social surplus both at the level of production that occurs without government intervention and at the level of production that maximizes the total social surplus. What is the deadweight loss in the absence of government intervention?
2. How would you expect the following changes to affect the prevailing wage and employment of workers in fast food restaurants? (Note: Except in part (6.), you should assume that the wage and employment are determined by the intersection of the labor supply and demand curves.)
a. Increasing public awareness of nutrition reduces the demand for fast food at a given price.
b. The growth of the gig economy makes it much easier to obtain work outside the fast food industry.
c. The introduction of new fryers increases the productivity of fast food workers.
d. Fast food workers unionize and are able to negotiate a wage that is above the previously prevailing wage