Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Chapter 4, Problem 3P
To determine
The graph of Person H demand curve for Cherry Blossom Makeup.
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Consider the effects of a natural disaster like hurricane Katrina on a metropolitan economy. In the initial (prehurricane) equilibrium, total employment in the metropolitan area is 500,000 workers and the daily wage is $100. The price elasticity of supply of labor is 4.0 and the price elasticity of demand for labor is −1.0. Suppose the hurricane reduces labor supply (a horizontal shift of the supply curve) by 100,000 workers.
a. Use a supply-demand graph of the urban labor market to show the effects of the hurricane.
b. The equilibrium wage [increases, decreases] by percent (to $ ) computed as. . . .
c. The equilibrium employment [increases, decreases] by percent (to workers), computed as. . . .
d. The reduction in the equilibrium employment is [greater, less] than the initial decrease in labor supply because. .
The government has introduced an excise duty of 10 percent on mealie meal. This essentially means the price of mealie meal, an essential item in most households, has increased by 10 percent. As the chief economist responsible for managing a social protection programme, you have been asked to make a proposal on how you can minimise the adverse effect of the excise duty on low income households. Using your knowledge of compensating or equivalent variation, show how you would ensure that these households are protected from such a measure. Would Lump sum taxes be better than unit (ad valorem or percentage) taxes in this context?
What is the “Law of Demand”? How does it relate to the Slutsky equation?
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- In the city of Growville, the equilibrium employment is 100,000 workers, and the equilibrium wage is $100 per day. The elasticity of demand for labor is 1.0 (in absolute value) and the elasticity of supply of labor is 5.0. The employment multiplier is 2.0. Suppose the demand for labor used in the production of exports increases by 6,000 jobs. a. Use a supply-demand graph of the urban labor market to show the effects of the increase in the demand for labor. b. The equilibrium wage [increases, decreases] by percent (to ) computed as. . . . c. The equilibrium employment [increases, decreases] by percent (to workers), computed as. . .arrow_forwardHow can tax incidences have a positive and negative impact on the economy?arrow_forwardThe Laffer curve suggests A.there is some maximum amount of tax revenue that the government can collect from taxing income. B.the optimal tax rate leads to the highest amount of tax revenue. C.the optimal tax rate on labor income is 0% D.an increase in tax rates leads to an increase in labor supply.arrow_forward
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ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc