1. Say whether the statement is True or False. If False, supply a reason or correct...
1. Say whether the statement is True or False. If False, supply a reason or correct the statement.
-
(a) Based on a supply and demand diagram, Minimum wages are Pareto Efficient since they help workers.
-
(b) The Labor Demand Curve slopes downward because lower wages means companies will hire as many
workers as possible.
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(c) Immigration increases labor supply.
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(d) The Labor Supply Curve slopes upward because workers are willing to work as many hours as possible for higher wages.
-
(e) The equilibrium wage rate is the minimum wage.
Homework Answers
(a) False
Since minimum wage is imposed above equilibrium wage rate, quantity of labor demanded falls and quantity of labor supplied rises. Since workers get job only to the extent firms hire workers, market employment falls to quantity demanded, creating unemployment. This decreases social welfare.
(b) True
When wage rate increases (decreases), firms decrease (increase) hiring to optimize their wage bill, giving the downward slope to the labor demand curve.
(c) True
Immigration increases the number of people available for work, and the labor force participation rate remaining unchanged, it increases labor force.
(d) True
When wage rate increases (decreases), workers increase (decrease) their hours to optimize their wage income, giving the upward slope to the labor supply curve. However, after reaching a threshold hour, workers work less, making the labor supply curve backward bending.
(e) False
Minimum wage is imposed above equilibrium wage rate (which is at the intersection of labor demand and supply curves).
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