1.a State the "Law of Demand" 5 pts b Look at these Graph 3 XX Graph 4 graphs: In graph 3 a higher price results in a higher quantity, in graph 4 a lower price results in a lower quantity. This means the "law of demand" is disproven. 1 Do you agree? Why or why not? 10 pts 2. Let's say that the prevailing wage rate is $15. You(the Queen or King) are thinking of proposing a minimum wage of $20 or $10. a. Is the $20 proposal a price ceiling or floor? Is the $10 proposal a price ceiling or floor? 10 pts b. Who is the buyer and seller? (demand curve, supply curve)? 5pts c. What would be the result of both policies. Le.would this result in a surplus or shortage, and what would you call this? 5 pts. 3. Suppose that air pollution is a problem. a. Describe a "cap and trade" policy as a possible solution 8 pts b What, if any, externalities are addressed by this program. Include in your explanation whether these are positive or negative, and how the policy ameliorates them. +12 pts cWhat might be some drawbacks to this policy? 5 pts extra credit Your answers to the above should be complete enough to answer the question. You can use verbal, graphical, mathematical explanations in your answer. Your answer to #3 a, should be at least 125 words. You may use other sources, please note them. The text treatment of all the above is sufficient.

Fig: 1