Using a graph of the classical labor market, illustrate the effects of a real wage existing in the market that is lower than the equilibrium real wage. What will eventually happen in this labor market if it is perfectly competitive?
What will be an ideal response?
If the real wage is lower than the equilibrium real wage then the quality of labor demanded is greater than the quantity of labor supplied. In the auction for labor, the real wage being paid to labor will eventually be bid up, increasing quantity supplied and reducing quantity demanded until the market is in equilibrium.
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According to Tobin's q theory, when q is ________, firms will not purchase new investment goods because the market value of firms is ________ relative to the cost of capital
A) low; low B) low; high C) high; low D) high; high
Economic model building begins with the construction of greatly oversimplified "benchmark" models, which are brought closer to reality by gradually removing the simplifying assumptions
In this process, more and more ________ variables become ________. A) short-run, long-run B) exogenous, endogenous C) long-run, short-run D) endogenous, exogenous E) nominal, real
Refer to Scenario 5.10. Hillary's indifference curves showing her preferences toward risk and return can be shown in a diagram. Expected return is plotted on the vertical axis and standard deviation of return on the horizontal axis
Although her indifference curves are upward sloping and bowed downward, their slope is very gradual (they are almost horizontal). These indifference curves reveal that Hillary is: A) risk neutral. B) risk averse. C) risk loving. D) irrational.
Suppose that you allow yourself $50 per month to spend on compact disks. You spend exactly this much every month regardless of the price of compact disks. Therefore, your demand for CDs
a. is elastic b. is inelastic c. is unit elastic d. cannot be characterized unless we know the price of a disk e. cannot be characterized unless we know the price and quantity of compact disks purchased