quanda01 - Chapter 1 1. People respond to incentives....

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Practice Questions to accompany Mankiw & Taylor: Economics 1 Chapter 1 1. People respond to incentives. Governments can alter incentives and, hence, behaviour with public policy. However, sometimes public policy generates unintended consequences by producing results that were not anticipated. Try to find an unintended consequence of each of the following public policies. a. To help the "working poor," the government raises the minimum wage to €25 per hour. Answer: Many would want to work at €25/hour but few firms would want to hire low productivity workers at this wage; therefore it would simply create unemployment. b. To help the homeless, the government places rent controls on apartments restricting rent to €50 per month. Answer: Many renters would want to rent an apartment at €50/month, but few landlords could produce an apartment at this price. Therefore this rent control would create more homelessness. c.
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quanda01 - Chapter 1 1. People respond to incentives....

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