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2) True / False / Explain: If labor is a small percentage of the total costs...

2) True / False / Explain: If labor is a small percentage of the total costs of an industry, then the elasticity of labor demand will be high.

3) True / False / Explain: Government subsidies increase economic efficiency since producer surplus and consumer surplus increase.

4) True / False / Explain: There is always a trade-off between equity and efficiency since it takes money to redistribute resources.

5) True/ False / Explain: Education is a pure public good.

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Answer #1

a) False, as labor takes small budget of the overall cost, the demand for the labor will be inelastic.

b) False, subsidy forces the producer to produce at the point were the marginal cost is more than the marginal benefit of the goods, it causes the deadweight loss and the consumer and producer surplus remains at the same level as equilibrium.

c) True, as we go for more equity in the market it takes considerable resouces for distribution which makes it a trade off between equity and efficiency.

d) False, pure public goods are those which are completely non rival and completely non excludable we can exclude some children from consuming education in private schools and due to other reasons.

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