Assume that the minimum wage has just been increased by 25%. Explain briefly why each of the following statements is true, false, or uncertain from an economic perspective.

Assume that the minimum wage has just been increased by 25%. Explain briefly why each of the following statements is true, false, or uncertain from an economic perspective.

If a company cannot increase the prices of the products it sells, it will absorb the wage increase (and continue operating & employing workers at the higher wage) as long as it can still earn positive economic profits after doing so.
If a company cannot increase the prices of the products it sells, it will absorb the wage increase (and continue operating) as long as it can still earn positive accounting profits after doing so.

Once this new law is in effect, some firms might find it advantageous to replace workers with machines.

We should be able to quantify the negative effects (if any) of this law on unemployment quickly, probably within the first two to three months.

Solutions

Expert Solution

If a company cannot increase the prices of the products it sells, it will absorb the wage increase (and continue operating & employing workers at the higher wage) as long as it can still earn positive economic profits after doing so. FALSE. Reason: According to profit maximization condition, it will employ less labor.
If a company cannot increase the prices of the products it sells, it will absorb the wage increase (and continue operating) as long as it can still earn positive accounting profits after doing so. TRUE. Reason: According to profit maximization condition, it will employ less labor but will continue its operations.

Once this new law is in effect, some firms might find it advantageous to replace workers with machines. TRUE. Reason: According to profit maximization condition, it will employ less labor and more of capital.

We should be able to quantify the negative effects (if any) of this law on unemployment quickly, probably within the first two to three months. FALSE. Reason: It takes time to impact real variables like unemployment.

Rahul Sunny answered 2 years ago

Next > < Previous

Related Solutions

Assume that the minimum wage has just been increased by 25%. Explain briefly why each of...

Assume that the minimum wage has just been increased by 25%. Explain briefly why each of the following statements is true, false, or uncertain from an economic perspective. A. If a company cannot increase the prices of the products it sells, it will absorb the wage increase (and continue operating & employing workers at the higher wage) as long as it can still earn positive economic profits after doing so. Please explain. B. If a company cannot increase the prices...

True, False, or Uncertain Explain why each of the following statements is True, False, or Uncertain...

True, False, or Uncertain Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important. A6-5. Suppose a $1000 bond pays annual “coupon interest” equal to 10% and matures in two years. If the yield on bonds with similar risk characteristics is 3%, the price of this bond today is greater than $1000. A6-6. Suppose the Bank of...

True, False, or Uncertain Explain why each of the following statements is True, False, or Uncertain...

True, False, or Uncertain Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important. A6-1. An economy with a recessionary gap will never return to long run equilibrium without policy intervention. A6-2. In a closed economy, investment will equal the sum of private saving and government saving. A6-3. An increase in private saving for a closed economy...

Explain why each of the following statements is True, False, or Uncertain according to economic principles....

Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important. A6-1. An economy with a recessionary gap will never return to long run equilibrium without policy intervention. A6-2. In a closed economy, investment will equal the sum of private saving and government saving. A6-3. An increase in private saving for a closed economy implies lower consumption in...

Explain why each of the following statements is True, False, or Uncertain according to economic principles....

Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. 112-A1-1. Suppose high-speed rail links between two pairs of cities cost a total $1B each. The first pair of cities has already spent $200M (that cannot be recovered) on the preliminary surveying work, while the second pair has not yet begun work. It is more likely that the first pair of cities will complete the project than that the second...

Explain why each of the following statements is True, False, or Uncertain according to economic principles....

Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important. A6-5. Suppose a $1000 bond pays annual “coupon interest” equal to 10% and matures in two years. If the yield on bonds with similar risk characteristics is 3%, the price of this bond today is greater than $1000. A6-6. Suppose the Bank of Canada (BOC) buys $10B...

Explain why each of the following statements is True, False, or Uncertain according to economic principles....

Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important. a. The fact that many developing nations have not finished building their wired communication networks and focused on wireless, while most developed nations have maintained their wired, and continued to build out their wireless networks can be explained by the concept of opportunity cost. b. If the...

Explain why each of the following statements is true, false, or uncertain. You are expected to...

Explain why each of the following statements is true, false, or uncertain. You are expected to use graphs, math, and/or specific examples to support your arguments. a. In the Ricardian model, if Home is much larger than Foreigh, it is possible that only Foreign experiences gains from the opening of trade between the two countries. b. If two countries have exactly the same increasing-cost PPFs, mutually beneficial trade is possible as long as residents in the two countries have different...

Briefly explain why you think the following statements are true, false, or uncertain. Your grade will...

Briefly explain why you think the following statements are true, false, or uncertain. Your grade will depend largely on the quality of your explanations. A change in the distribution of income that leaves total income constant will not shift the market demand curve for a product providing Everyone has an income elasticity of demand of zero for the product. Everyone has the same income elasticity of demand for the product. Individuals have differing income elasticities for the product, but the...

Subjects