Quiz 7 Examples

# Quiz 7 Examples - Quiz 7 Examples 1 What would be indicated...

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Quiz 7 Examples 1. What would be indicated by an increase in the P50/P10 wage ratio? P50 is median wage: 50% of all workers earn more and 50% earn less. Analogous P10 is the wage such that 10% of all workers earn more and 90% earn less; P10 is the wage such that 90% of all workers earn more and 10% earn less. Thus an increase in the P50/P10 ratio shows an increase in wage inequality in the bottom half of the wage distribution. 2. How do you distinguish substitutes and complements? If goods A and B are substitutes, their cross-elasticity of demand is positive. That means that an increase in the price of A, caused by a shift of supply to the left, causes an increase in the demand for B. If goods A and B are complements, their cross-elasticity of demand is negative. An increase in the price of A, caused by a shift of the supply to the left, causes a decrease in the demand for B. 3. What does an increase in trade in furniture do to the elasticity of demand for furniture produced domestically? Since the foreign and domestic furniture are substitutes, the increase in trade makes

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Quiz 7 Examples - Quiz 7 Examples 1 What would be indicated...

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