Solutions to End-of-Chapter Exercises
Chapter 17 [32]
Section 17.1 [32.1]: The Demand for Labor
1.1
marginal product, price of output
1.2
marginal revenue product, wage
1.3
marginal revenue product
1.4
down arrow, down arrow, up arrow, up arrow
1.5
substitute labor for other inputs in the production process
1.6
flatter
1.7
Monthly income decreases from $200 ($2 x 100) to $180 ($3 x 60)
1.8
Incorrect because it ignores the output effect. An increase in the wage increases
production cost and the price of air travel. The resulting decrease in the quantity
of airline travel demanded will decrease the number of flights and pilots.
Section 17.2 [32.2]: The Supply of Labor
2.1
up arrow, down arrow, up arrow
2.2
up arrow, up arrow, down arrow
2.3
income, substitution, opposite
2.4
30, 20, negatively
2.5
True
2.6
a. Initial income = $1,000 = $200 + $20 x 40 hours. New income with 40
hours of work = $1,000 = $280 + $18 x 40
b. There is no income effect because the initial choice of 40 hours generates the
same income. The substitution effect will reduce her hours worked.
2.7
Supply is more elastic for Portland because intercity migration is less costly than
international migration.
2.8
The statement ignores the income effect of a change in the wage. A decrease in
the tax rate increases real income. An increase in income increases the demand for
leisure and decreases the supply of labor.
2.9
Different answers, depending on preferences.
Section 17.3 [32.3]: Labor Market Equilibrium
3.1
up arrow, down arrow
3.2
up arrow, up arrow
3.3
some restaurant workers, other restaurant workers, restaurant customers
3.4
up arrow, down arrow, down arrow
3.5
up arrow, up arrow, down arrow, down arrow
3.6
highly skilled, prices, wages
3.7
a. 20, 22, 10
b. 70, 800, 700
c. The quantity of sweatshirts demanded at the higher price would increase. If the
number increased to 81, labor income would increase from $800 to $810.
3.8
a. The equilibrium wage decreases by 4% = 12% /(2.0 + 1.0)
222
The Labor Market, Income, and Poverty 223
b. Cost of producing food and its price could decrease by 1%.
3.9
3.10
a. The wage is relatively low because supply is large relative to demand. On the
supply side, workers are willing to accept a relatively low wages because of
working conditions.
b. The average quality increases. If the number of teachers hired doesn’t change,
the tax liability will increase. If the number of teachers hired decreases, but by a
relatively small amount because of inelastic demand, the tax liability will
increase.
Section 17.4 [32.4]: Explaining Differences in Wages and Income
4.1
demand, supply
4.2
high
4.3
lower
4.4
4
4.5
4.6
a.
b. The equilibrium wage decreases by 3% = 12% / (3.0 + 1.0).
c. Output effect: The decrease in the wage decreases production cost and the
output price, which increases the quantity of output demanded and produced,
causing the firm to hire more workers. Substitution effect: The decrease in the
wage relative to the price of other inputs causes firm to substitute labor for other
inputs.
a. Offer employment to the graduate of High School H.
b. The name provides (imperfect) information about whether an applicant fits
into one group or another, just like the information on high school affiliation.
224 Chapter 17
4.7
a.
The increase in non-wage compensation will increase the supply of labor, shifting
the supply curve to the right and decreasing the equilibrium wage. So, workers
get more in tips but less in wage income. On the demand side, the increase in the
net price of a meal will decrease the quantity of meals demanded, shifting the
demand curve to the left. This creates additional downward pressure on wages.
b. Given the decrease in the equilibrium wage, the change in daily income will
certainly be less than $20. If the wage drops to $6, daily income would be
unchanged at $110 = (1/5) $400 + $6 x 5 hours
Section 17.5 [32.5]: The Distribution of Income
5.1
1.48, 4.68
5.2
high school graduates, college graduates, 100
5.3
up arrow, down arrow
5.4
up arrow, down arrow
Section 17.6 [32.6]: Poverty and Public Policy
6.1
Hispanic, White, Female-headed household, Under 18 years
6.2
20, 10
6.3
20
6.4
False
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