How would each of the following factors be likely to affect the economy-wide supply of labor?...

How would each of the following factors be likely to affect the economy-wide supply of labor? Show your answers graphically and briefly explain.

A.The relaxation of immigration law that causes an influx of immigrants into the U.S.

B.The age at which people are eligible for Medicare is decreased.

C.Social Security benefits are made less generous.

D.War preparations lead to the institution of a national draft, and many young people are called up.

E.More people decided to have children (consider both short-term and long-term effects).

Expert Solution

a. Relaxation of Immigration: If more people can enter the country by easing immigration laws, the supply of labor will increase. This will shift the supply curve to the right. Salaries will go down. Big employers with low salaries are now available.

In the diagram, the supply curve shifts from S1 to S2. Therefore, wage rates increase from W1 to W2 and labor supply from L1 to L2.

b. If Medicare life is cut, people will be more secure for their future. This will encourage them to work harder. This will increase the supply of labor. The curve will shift to the right. Now the low wages are much higher.

The diagram of point 1 is also applicable here.

c. If Social Security benefits become less generous, safety and security at work will decrease. So the job is less attractive now. This will reduce the supply of labor. The curve will shift to the left. Less labor exists at higher wages.

Note that the supply curve shifted leftward from S1 to S2. Therefore, wages increased from W2 to W1 and labor supply decreased from L2 to L1.

d. If more people are called to prepare for war, available labor is less. This will shift the supply curve to the left. Less labor exists at higher wages.

Diagram of point 3 is applicable here.

Rahul Sunny answered 11 months ago

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