Essay on Economic Problems
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 capital per worker than does industry B. Therefore, …show more content…
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