If you are an urban policymaker, and you are interested in increasing the population in your...

If you are an urban policymaker, and you are interested in increasing the population in your city but also want to increase wages, which of the following policies would you prefer? (hint: analyze using the Rosen-Roback model)

Group of answer choices

a. Increased enforcement of local environmental laws, to lower pollution. (This will increase costs for firms.)

b. Encouraging the Federal government to locate a new university in your city.

c. Reducing public services to residents (parks and festivals, for instance), without reducing their tax bill.

d. Raising taxes on firms, without changing service levels to firms.

e. Reducing public services to firms(roads and infrastructure,for instance),without changing the taxes firms pay.

Solutions

Expert Solution

See the response and reasoning in the orange color text:

a. Increased enforcement of local environmental laws, to lower pollution. (This will increase costs for firms.) Firms seeing their pollution control costs already increasing won't increase the wages as well. Bad idea.

b. Encouraging the Federal government to locate a new university in your city. Yes. New university in city will bring many students and professors and support staff to habitate in the city. It will increase population of the city. Also, with university courses, the skill level of city residents will go up and they will be able to earn higher wages.

c. Reducing public services to residents (parks and festivals, for instance), without reducing their tax bill. Having to pay taxes without getting much of public services will actually force the existing population to migrate to other cities. And this step also doesn't help in increasing the wages. A bad choice.

d. Raising taxes on firms, without changing service levels to firms. Firms, seeing their tax costs going up, will face pressure on their profitability and competitiveness in the market. They won't raise the wage rates in the city. Bad idea again.

e. Reducing public services to firms(roads and infrastructure,for instance),without changing the taxes firms pay. How does it help increasing the population of city? And how does it help increasing the wage rates? Even this one is a bad idea.

Rahul Sunny answered 1 year ago

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