1. Name two reasons why firms would not want to pay their workers based on reser
ID: 1134110 • Letter: 1
Question
1. Name two reasons why firms would not want to pay their workers based on reservation wages.
2. Using pizza as an example, describe a way that a social planner could increase efficiency/equity for those consuming pizza.
3. What are the two assumptions of positive economic analysis?
4. What can unions do to lower the wage elasticity of demand for their members’ services?
5. What is one flaw of the U3 (the most commonly reported) measure of unemployment?
6. What is the interpretation of the labor supply curve for the individual workers?
7. What two factors are responsible for determining a worker’s value to the firm?
8. Why are assumptions important in modeling?
Explanation / Answer
1. Name two reasons why firms would not want to pay their workers based on reservation wages.
2. Using pizza as an example, describe a way that a social planner could increase efficiency/equity for those consuming pizza.
Social planner can removes taxes and levies on pizza and thus people may be encouraged to consume more pizza. It will promote efficiency and equity.
3. What are the two assumptions of positive economic analysis?
4. What can unions do to lower the wage elasticity of demand for their members’ services?
Increase in skills and training would reduce the elasticity of demand for members of labor. Now firms would find it difficult to get substitute for labor easily.
5. What is one flaw of the U3 (the most commonly reported) measure of unemployment?
U3 is narrower measure of unemployment. It does not include discouraged workers. Hence, it does not reflect true nature of unemployment. U 6is considered as broader measure of unemployment.
6. What is the interpretation of the labor supply curve for the individual workers?
Labor supply for individual is backward bending after reaching certain level of income. Worker moves towards leisure after attaining certain level of income.
7. What two factors are responsible for determining a worker’s value to the firm?
8. Why are assumptions important in modeling
Assumptions make the study of relationship between variables simple and conclusions can be drawn easily. Study of economics is made less complicated by introducing assumptions.
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