Question

I need solution for this issue with all the details./Br/Ha

State whether the following statements are true or false. Shortly explain your answer in 1-2 sentences.

a) In a model with a perfectly competitive firm, if two input factors (e.g. employment and capital) are perfect complements, then a change in wages leads to a large substitution effect.

b) In a simple model of labor demand with a competitive firm that uses capital and labor in production, the effect of a reduction in wages on the amount of capital used in production is ambiguous in the long run.

c) In a perfectly competitive model, the effects of introducing a payroll tax on equilibrium employment and wage outcomes depend on whether the government decides to tax the firm or the worker.

d) In a perfectly competitive model, if migrants and natives are complements in production, then an inflow of migrants to the labor market will increase natives employment and wages

Answer 1

1. True

This is because the substitution effect dominates the supply of labor at normal wage rates, but the income effect may come to dominate at higher wage rates.

2. False

This is false because if the price of the capital-intensive good rises (for whatever reason), then the price of capital—the factor used intensively in that industry—will rise, while the wage rate paid to labor will fall.

3. True

An income tax results in a lower quantity of labor being supplied to the market (people either stop working, or work less hours), and a higher salary paid by employers BUT a lower salary received by employees.  

4. False

The impact of immigration will also depend on the size of the inflow, the skill composition of immigrants compared to that of the native-born population, and characteristics of the destination country economy such as the ease with which firms can adopt or develop new technologies and the speed at which capital can accumulate or move between industries, as well as the economic links between that country’s regions and its degree of integration with the world economy.