10e_Essay_Test_Bank_Ch_17_FINAL

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1、Chapter17:WorkandtheLaborMarketEssayQuestions1.Whywouldanincreaseinthemarginalincometaxratelikelytoleadtoareductioninthenumberofhoursworked(allotherthingsheldconstant)?Whywouldanincreaseinthemarginalincometaxratemightactuallyleadtoanincreaseinthenumberofh

2、oursworked?Answer:Anincreaseinthemarginalincometaxratelowerstheprice(opportunitycost)ofleisure(theopportunitycostofleisureistheaftertaxwage)andsopeoplewilldemandagreaterquantityofleisure.Buyingmoreleisuremeansworkingless.Alternatively,theincreaseinthemarg

3、inalincometaxratedecreasesthecompensationfromworkingsothatthereislessincentivetoworkmorehenceadecreaseintheamountoflaborhourssupplied.Ofcourse,allthisassumesthatallotherthingsremainequal.Anincreaseinthemarginalincometaxratelowersincome.Sincewagesareanimpo

4、rtantcomponentofhouseholdincome,afallinafter-taxwagesmeansthatotherthingsdonotremainequal.Itisquitelikelythatthenegativelabor-leisuresubstitutioneffectonhoursworkedwillbeoverwhelmedbythepositiveincomeeffect.Asaresultofthetaxincrease,workersbecomepoorerand

5、cannotaffordtopurchaseasmuchleisuretime.Theymustworkmore,notfewerhours.2.Fourfactorsthatinfluencetheelasticityofmarketlaborsupplyare.(1)Individuals'opportunitycostofworking,(2)thetypeofmarketbeingdiscussed,(3)theelasticityofindividuals'supplycurves,and(4)

6、individualsenteringandleavingthelabormarket.Howdoeseachfactoraffecttheelasticityoflaborsupply?Answer:(Anythreeofthefollowing)1.Individuals'opportunitycostofworking.Thiswilldeterminetheelasticityoftheindividuallaborsupplycurves.2.Thetypeofmarketbeingdiscus

7、sed.Ifonefirminacommunityraiseswages,itwillfindthatsupplyiselastic.Ifallfirmsinacommunitysimultaneouslyraisewages,theywillfindthatsupplyisinelastic.3.Theelasticityofindividuals'supplycurves.Themoreinelasticareindividualsupplycurves,themoreinelasticwillbet

8、hemarketsupplycurve.4.Individualsenteringandleavingthelabormarket.Ifalargenumberofpeoplearewillingtoenterthelabormarketwhenwagesrise,thenthemarketlaborsupplywillbehighlyelastic(evenifindividuals'supplycurvesareinela