Question 1)

Would a law that makes \$15 be the minimum legal price employers in Richmond can pay employees for an hour of labor help low-skilled workers find jobs with higher wages in Richmond? Explain why or why not. Be sure to discuss the impact on wages, availability of jobs, and benefits employers offer to employees.

Question 2

This post has a link to an article that describes Philadelphia’s proposal to put a tax on regular soda and other sugar-added beverages including sports and energy drinks and ice tea. Here are some money quotes:

“Philadelphia … is weighing a tax that could raise the price of a can of Coke or Pepsi by more than half …The beverage industry estimates Philadelphia’s consumption would fall by 79% in the first year and the mayor’s office estimates a 55% drop, if fully passed on to consumers.”

To simplify our analysis, let’s say that the tax will increase the price of regular soda and other sugar-added beverages by 50% or exactly half and that the consumption in Philadelphia will fall by 67%, the average of 79% and 55%, relative to current levels in the first year.

2. What is the elasticity of demand for regular soda and other sugar-added beverages in the first year?

|e| = ______

3. Is demand elastic or inelastic?

1. Elastic

2. Inelastic

4. Will expenditures by consumers on regular soda and other sugar-added beverages increase or decrease?

1. Increase

2. Decrease

5. Will consumption fall by more than 67% relative to current levels or less than 67% when consumers have more time to adjust to the higher prices? Assume that demand is constant; that is, that income,  prices of substitutes and complements, and population remain constant.

1. Decrease by more than 67%

2. Decrease by 67%

3. Decrease by less than 67%

6. Suppose that the tax was only on regular Coke and Pepsi. Would consumption of Coke and Pepsi fall by more than 67% relative to current levels or less than 67%

1. Decrease by more than 67%

2. Decrease by 67%

3. Decrease by less than 67%

7. Compute the arc-price elasticity of demand for the following data.

 Row Price Quantity demanded 1 35 63 2 45 57

1. What is the arc-elasticity of demand when price increases from 35 to 45?

|e| = ______

2. What is the arc-elasticity of demand when price decreases from 45 to 35?

|e| = _____