101_PS14_ans_03 - Answers to Problem Set 14 Answers to...

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Answers to Problem Set 14 Answers to Review Questions 1. When the wage rate in one occupation goes up relative to the wage rates in others, people enter that occupation, and hence the upward-sloping supply curve. 2. Small differences in human capital can translate into large differences in wages, as when the best soprano beats out an almost equally talented rival for a multi-million- dollar recording contract. So False. 3. Such technologies contribute to increased concentrations of income and wealth among top earners, in the manner described in Economic Naturalist 13.3. 4. Unless we can find means to transfer income to the poor, governments typically attempt to help the poor in less efficient ways, as by adopting price controls or minimum wage laws. Income transfers made through public jobs programs have the added advantage of producing additional goods and services that are valued by taxpayers at all income levels. 5. A negative income tax grant big enough to alleviate urban poverty for a family would also be large enough to induce many people to quit work to live at taxpayer expense. Such a program would be politically unpopular as well as prohibitively expensive. Answers to Problems 1. Sandra’s marginal product is 60 air filters per month, and the value of her marginal product (VMP) is (60)($25), or $1,500/mo. Bobby’s VMP, similarly, is (70)($25), or $1,750/mo. Since the labor market is competitive, Sandra and Bobby will earn exactly their respective VMPs each month. 2a. After deducting the $5 cost of the fabric, the company receives $30 from the sale of
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This note was uploaded on 03/27/2008 for the course ECON 1110 taught by Professor Wissink during the Spring '06 term at Cornell University (Engineering School).

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101_PS14_ans_03 - Answers to Problem Set 14 Answers to...

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