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Unformatted text preview: s. Draw lines that depict the average product of labor (APL) and the marginal product of labor (MPL). Clearly label all axes and the point, p* at which diminishing marginal returns to labor set in. [2 points] Answer: See graph from lecture. 3. Consider that each resident of Chalfinia needs an amount of food, s to survive. If the wage falls below s, residents of the island will die. Assuming that there are no taxes or transfers, provide a condition (or equality or equation) that characterizes the maximum possible population size in Chalfinia. [2 points] Answer: s=MPL. 4. Thinking about the standard population size
land use model in lecture, name a condition under which slavery is most likely to develop. [1 point] a. s = MPL b. s = APL c. APL = MPL 2 Name (Last, First): SID: d. Between s = MPL and s = APL 5. Temporarily, the island’s population becomes large enough such that the market wage falls below the subsistence level. Rather than see the population shrink, the municipal government of Chalfinia enacts a tax (τ) on landowners such that some of the profits accruing to landowners are redistributed to workers. Using MPL, s, the number of workers (n) and the number of landowners (L), write an equation for the minimum size of the tax that each landowner must pay to ensure the survival of all workers. [3 points] Answer: ! ≥ !(!!!"#)
! 6. Name an equality that gives the population size where surplus per worker is maximized. Will the island’s total surplus be maximized at the same population size as the island’s surplus per worker? Briefly explain your answer. [3 points] Answer: No. While total surplus is maximized at s=MPL (where the wage equals subsistence), surplus per worker is maximized at a higher population size. The surplus per worker is given by the gap between the APL and the MPL. This gap is increasing in population. Since the maximum sustainable population size is given by s= APL, this is where surplus per worker is maximized. Note: It is also acceptable for a student to say “yes” if the assumption is that there is no redistribution and therefore that population cannot grow beyond s=MPL in the first place. 7. More time has passed and Chalfinia has declared independence from Ellicott. The national government of Chalfinia is now charged with creating a military. A proposal has been put forth by the new country’s economists: [4 points] PROPOSAL A: In orde...
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This test prep was uploaded on 03/06/2014 for the course ECON 175 taught by Professor Lee during the Spring '08 term at University of California, Berkeley.
 Spring '08
 Lee
 Economics

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