1) A minimum wage is an example of a price floor. what's an example of using supply and demand analysis, the effects on the labor market of imposing a minimum wage. Why would a government choose to impose a minimum wage?

2) Assuming that orange juice is a normal good. What would happen to the market for orange juice in each of the following cases:

A severe winter affects the orange crop in Florida

An advertising campaign emphasizing the health effects of consuming Vitamin C is launched

The price of grapefruit juice falls

Agricultural workers win a wage increase

3.What's the difference between command-and-control and market oriented solutions to negative externalities? what's an example of each employed in pollution control?

4.A firm produces 100 computers. Its total costs are $90,000 of which fixed costs are $20,000. What are its: Average Fixed Costs, Average Variable Costs and Average Total Costs? When it produces another computer its total costs rise to $90,500. What is the marginal cost of the 101^st computer?

5.What alternatives do firms have when raising capital? What criteria do they use in choosing between them?

 

1.  A minimum wage is an example of a price floor. What's an example of using supply and demand analysis, the effects on the labor market of imposing a minimum wage. Why would a government choose to impose a minimum wage?

The minimum wage rate is the least value of money that a person may be paid as mandated by the law. In a demand and supply model, the quantity demanded in the x-axis represents the number of workers willing to work while the y-axis represents the number of people that companies are willing to hire. A price floor set by the government for paying certain workers for instance farm laborers will lead to a disequilibrium in the market. The price increase will reduce the demand of employers to employ more people and similarly increase the quantity of the number of workers willing to work at the set price. Due to this shift in the demand and supply curves, a proportion of workers will have to be laid off since the demand does not meet supply. The remaining pool of workers that will be accommodated within the supply curve will work at the increased set price floor at the expense of a larger number of unemployed workers. This will only increase the level of unemployment since demand and supply are not self-regulating. Also, the business will increase their prices to meet the labor cost and some of the small businesses can shut down if the operating costs are too high.

The government may opt to raise the minimum wage rates to stimulate economic growth in the economy. An increase in wages will mean better living standards for its citizens hence more investment opportunities in the economy. Similarly, this can reduce poverty in a country by reducing the number of people below the poverty line. Minimum wage rates may be set up also if the majority of people demand it. Governments may deliberately increase the price floor if they can afford it. This may be a way of delivering services to its citizens.

2. Assuming  that orange juice is a normal good. What would happen to the market for orange juice in each of the following cases:

A severe winter affects the orange crop in Florida

Adverse climatic conditions affecting the orange crop will cause a reduction in the production of the fruit. There will be less supply of the crop to the market and hence raising rapidly the orange prices due to the huge unmet demand in the market. Consumers will run into the consumption of substitute fruits to satisfy their demand for the juice.

 An advertising campaign emphasizing the health effects of consuming Vitamin C is launched

Advertising will create awareness of the importance of Vitamin C on the health consumers. The demand for orange juice, which contains Vitamin C will rapidly increase and raise its price as suppliers try to meet the new unexpected demand.

  The price of grapefruit juice falls

This will cause a reduction in prices since this is a substitute product. A reduction in the prices of grapefruit will increase its demand due to its affordability. This will reduce the demand for orange juice as consumers will be using grapefruit.

    Agricultural workers win a wage increase

This will increase the price of the orange juice as producers will transfer the cost of production to the consumers. This may lead to a decline in the quantity demanded in the market as consumers will shift to close substitutes.

3.   What's the difference between command-and-control and market-oriented solutions to negative externalities? What's an example of each employed in pollution control?

Market-oriented solutions to control pollution are policies that allow firms to be flexible by creating incentives that lure them in controlling pollution. They may be in form of marketable permits, well-defined property rights, and pollution charges. Pollution charges are taxes imposed on firms depending on the level by which they control pollution. Firms put up measures to ensure that they maximize their profits by utilizing their incentives to control pollution in the best way possible. Permits may also be given to firms at no cost or at a charge regulating them to pollute the environment to a certain point. Owners may be given property rights to create proportionality between pollution and the level of economic activities. An example of this approach is how the United States provides incentives to firms in a bid to control carbon (IV) oxide emissions. ("What are market-oriented environmental tools? (article)," n.d.) 

Command and control measures differ in that they are requirements that certain limits of controlling pollution must be met. They offer no incentive to pollution control and firms maybe slack after meeting the specified requirements. Secondly, they are not flexible. The regulations are the same for all the firms regardless of their size or technological capability. Some of the firms might be unable to meet these requirements. Also, these measures are set by legislators and have dire consequences if not met as per the environment act. ("12.2 command-and-Control regulation - Principles of economics," n.d.) For instance, strict control measures were set in place to control the adverse deadly Katrina hurricane in the United States. Regulations were set up after government authorities had failed to provide aid to control the hazardous floods.

4. A firm produces 100 computers. Its total costs are $90,000 of which fixed costs are $20,000. What are its: Average Fixed Costs, Average Variable Costs, and Average Total Costs? When it produces another computer its total costs rise to $90,500. What is the marginal cost of the 101^st computer?

Average Fixed Costs

=Fixed Costs/Number of output

20,000/100=200

Average Variable Costs

=Variable costs/Number of output

Variable cost=Total Costs-Total Fixed Costs

                       90,000-20,000=70,000

70,000/100=700

Average total costs

=Total Costs/Number of Output

90,000/100=900

Marginal cost

Additional total cost-previous total cost/Number of output

90,500-90,000/1=500

5. What alternatives do firms have when raising capital? What criteria do they use in choosing between them?

Firms require a huge amount of capital for start-up or running their operations. There are two major ways they source this capital to finance their activities. This is either through debt capital or equity capital. Companies source debt capital by borrowing a fixed sum of money that is to be repaid later with an agreeable interest rate. Large firms use bonds and loans while small firms may use credit cards to finance their operations. Debt capital is mainly issued by banks where the bank and business enter into a contract. The bank provides the finances that are due on a maturity date together with the accumulated income. Companies may also source equity capital by selling shares of the company stock. They are common or preferred shares. The value of these shares will grow according to the performance of the business.

Equity shares are different from the debt capital in that the business owners do not have to pay the shareholder investment hence more preferable. However, the shareholders will own a small portion of the company hence the ownership becomes diluted. The business management is also liable to the shareholders where they have to maximize the profit to pay all the shareholders. Firms have to decide on which method to use depending on their own preference or the cost involved in paying back the shareholders.