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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Using two demand and supply diagrams, one for the low-wage labor market and one for the high-wage labor market, explain how information technology can increase income inequality if it is a complement to high-income workers like salespeople and managers, but a substitute for low-come workers like file clerks and telephone receptionists.

To determine

Increase in income inequality using information technology.

Explanation

Labor markets have demand and supply curves.

A high salary leads to decrease in the level of quantity demanded of labor, whereas a lower salary leads to an increase in the level of quantity demanded of labor by employers.

As per the law of supply functions in the labor market: An increased labor price leads to a higher level of quantity supplied of labor, whereas a lower price leads to a lower level of quantity supplied. In a low-income labor market, information technology shifts the demand to left. The major reason is information technology which can be used to substitute for telephone receptionists...

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