Question

Answer “true” or “False” and explain. Your answer should start with “true” or “false. your answer should be based on the graphical analysis (supply and demand diagrams).

a) When unions play a decisive role in the labor market, the dead-weight loss of payroll tax is high, and the revenue generated by the tax is small

b)A good time to increase the federal minimum wage is when the economy is going into recession

c)  Technological innovation benefits society because it increases the total revenue of the producers.

Answer 1

a) FALSE. When Unions play a decisive role, they push the income of the labor higher. Also, they push to increase taxes on the rich. Unions play an important role in reducing inequality. Thus, the tax collected increases.

b) FALSE. Increase in minimum wage will make Short Run Aggregate Supply(SRAS) curve to shift left. This will even reduce the supply further. When economy is going into recession and minimum wages are increased, this will even increase the recession chances.

c) TRUE. Technological innovation shifts SRAS and LRAS towards right. This will increase the total output in an economy. Thus, this increases total income as well. So, technological innovation increases the total revenue of the producers.