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Economic Problems Essay

1309 words - 6 pages

Exercises
True‐False: Indicate whether each of the following statements is true (agrees with economic theory), false (contradicts economic theory) or is uncertain and explain your answer.

1. A firm earning zero economic profit is paying each factor’s owner the market value of that factor’s marginal product.

2. Input substitution increases the factor price elasticity of demand.

3. If individual workers substitute leisure for income at higher wage rates, the market supply curve of is negatively sloped.

4. Factor A is a major input in the production of commodity B. A price ceiling on A below its equilibrium price will increase the price of commodity B.

5. Industry A uses more ...view middle of the document...

a. Compute the equilibrium employment level for plumbers.

b. Compute the equilibrium wage rate for plumbers

c. Compute the employer surplus.

d. Compute the employee surplus.

12. Suppose that the marginal revenue product for plumbers changed to MRPL =$3000 – 3L, while the
reservation wage equation remained at wr = $200 + 2L:

a. Compute the new equilibrium employment level for plumbers

b. Compute the equilibrium wage rate for plumbers

c. Compute the new employer surplus.

d. Compute the new employee surplus.

Chapter 12 Income Determination in Competitive Factor Markets Page 301
Short essay: Answer each of these questions in brief but complete essays.
13. Occupation A requires a college degree and occupation B requires only a high school diploma. A person would be indifferent between the two occupations if the present value of earnings in the two occupations were equal. If government subsidies paid the cost of college tuition and books, the equilibrium earnings in occupation A and occupation B will be equal.

14. Suppose that the demand for economic consulting increases; explain the effect of this event on:

a. The equilibrium wage rate from economic consultants.

b. The equilibrium wage rate for economics professors.

c. The number of economics majors.

15. In 1962 the Aid to Dependent Children (ADC) program, which provided income to widows so that
they could afford to raise their children without working outside the home, was changed to AFDC
(Aid to Families with Dependent Children) which provided a poverty level income to every family
with children under the age of 18. However, for each dollar of income earned, the family lost a dollar
of benefits. Conservative members of congress complained that welfare recipients did not work.
Was this a rational response by welfare mothers? Explain.
Exercises
Indicate whether each of the following statements is true (agrees with economic theory),
false (contradicts economic theory), or uncertain. Explain your answer.

1. A military draft is one way the government can avoid the economic costs of its monopsony
power in the market for military recruits.

2. Military conscription that allows draftees to hire replacements (as was the case in the
Civil War) is less efficient than a draft that requires service of all draftees.

3. If a craft union pushes the wage rate above the competitive level, a collusive agreement
among employers to resist the power of the union will increase economic efficiency.

4. If male workers demand higher wages when they are managed by women than when they
are managed by men, profit-maximizing employers will hire female managers only to manage female workers.

5. If an employer pays women a lower wage rate than he pays men for the same job, the
firm must be a monopsonist.

6. First-degree wage discrimination is just as efficient as is an equivalent competitive labor
market.

7. Whenever a labor union raises wage rates,...

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