The figure above illustrates the current market for workers in Lima, Peru
a) Without any government intervention, what is the equilibrium wage rate and amount of employment?
b) If the city government imposes a minimum wage of $3 an hour, what is the amount of employment? Does the minimum wage create any unemployment? Why or why not?
c) If the city government imposes a minimum wage of $6 an hour, what is the amount of employment? Does the minimum wage create any unemployment? Why or why not?
a) The equilibrium wage rate is $4 an hour and the equilibrium amount of employment is 8,000 workers.
b) Employment remains 8,000 workers. The minimum wage does not create any unemployment. The $3 per hour minimum wage does not bring about any unemployment because it is below the equilibrium wage rate.
c) Employment decreases to 4,000 workers, the quantity of labor demanded at a wage rate of $6 per hour. At the wage rate of $6 per hour, the quantity of labor supplied is 12,000 workers and the quantity of labor demanded is 4,000 workers. Hence there are 8,000 workers unemployed. The minimum wage of $6 an hour creates unemployment because it is higher than the equilibrium wage rate. As a result, the quantity of labor supplied increases and the quantity of labor demanded decreases, leading to a situation of excess supply, or unemployment.
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A spending shock is a change in spending that ultimately affects the entire economy
a. True b. False
Mutual interdependence among firms in an oligopoly means that:
a. firms never form a cartel. b. it is difficult to know how firms will react to decisions of rivals. c. no formal agreement is possible among firms. d. firms never practice price leadership.
A growth recession is said to occur when the economy grows at a
A. Slower rate in the current year than the preceding year. B. Rate less than that of population. C. Rate less than the long-term average. D. Negative rate.
Changing the ownership of the ocean from common property to private property would
A) ensure that this resource would be allocated in a more efficient manner. B) ensure that this resource would be allocated in a less efficient manner than under common property rights. C) not be economically desirable. D) result in no appreciable change in efficiency of utilization of this resource.