Question

1. Explain how a corporate tax break affects the labor supply and demand graph and its connection to the aggregate production function.
2. State if it increases or decreases each of the following:
   1. equilibrium wage ______________
   2. number of workers ____________
   3. total output ________________
   4. productivity (output per worker)________________
   5. standard of living _______________

Answer 1

1 ans)Equilibrium wage: Higher wage leads to decrease in labour quantity and lower wage leads to increase in labor supply and demand.At equilibriem both quantity supply and quantity demanded are equal.Every worker at equilibrium wage will have a job.The supply curve and demand curve intersects at equilibrium,

2 ans) No of workers: If wages increase the number of workers will reduce shifting the demand curve to Upward movement.If wages decrease the number of workers increases shifting demand curve movement downwards.If demand for good decreases then number of workers will be few but if demand increases number of workers will be more.

3 ans ) Total output:the supply curve shifts to the right if the total output increases which leads to lower unemployment.If total output decreases then the curve shifts to left increasing unemployment.

4 ans ) Productivity:the greater quantity of output is possible with increased productivity shift the demand graph to the right and if the productivity decreases the the demand curve shifts to left.

5 ans) standard of living:the increase in labour productivity leads to increase in standard of living.The decrease in labour productivity decreases the standard of living..