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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

Assume that the supply of law-skilled worker is fairly elastic, but the employers’ demand for such workers is fairly inelastic. If the policy goal is to expand employment for low-skilled workers, is it better to focus on policy tools to shift the supply of unskilled labor or on tools to shift the demand for unskilled labor? What if the policy goal is to raise wages for this group? Explain your answer with supply and demand diagrams.

To determine

To determine: Suppose the supply for low skilled workers is elastic but the demand for low skilled workers is inelastic. Our goal is to increase the employment level. Do we need to shift the supply schedule or demand schedule? Now, if our goal is to increase the wage rate then how can we achieve the target? Explain with the help of diagrams.

Explanation

With elastic labor supply curve and inelastic labor demand curve, the equilibrium in the economy is achieved at point where they both intersect each other at point ‘E1’.

If the goal of the policymakers is to expand the employment level, then it can be achieved by shifting the labor demand curve to the right. It means the when the labor demand for low skilled workers by firms rises, the labor demand curve for low skilled workers shift rightward and new equilibrium point is achieved at ‘E2’. Note that, at new equilibrium point, employment of low skilled workers has increased from ‘L1’ to ‘L2’.

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