Question

A. Given that the relative wages of high skilled workers rose sharply in the 1970's and 1980's while the relative quantity of high skilled labor was increasing. Where should we look to explain the wage increase.

i) A Shift in Supply

ii) A shift in demand

iii) A shift in consumer preferences

iv) A . shift in the earth's axis

B) Select the false statement below.

i) Ceteris Paribus, more elastic supply means that demand shifts tend to change quantity more than price.

ii) Both binding quantity limits and price floors can result in the transfer of surplus from consumers to producers.

iii) A price ceiling's primary benefit is that it helps suppliers increase surplus.

iv) Quotas have deadweight loss, as do price controls.

Answer 1

It must be a shift in the demand. We are given that there was an increase in the relative wages of high skilled workers as well as the quantity of high skilled labour demanded and supplied. This can happen only when the demand curve shifts to the right which increases the wage rate and the quantity of labour hired. Select a shift in the demand

The third statement is false. When there is a price ceiling, price as well as quantity sold both are decreased so that the supplier has a reduced surplus. Therefore price ceiling actually decreases the supplier's surplus.