Question

1. Is the United States’ labor supply more inelastic or more elastic? Briefly summarize the competing theories.

2. The demand for energy drinks is more elastic than the demand for milk. Would a tax on energy drinks or a tax on milk have a larger deadweight loss? Explain.

3. You find that your paycheck for the year is higher this year than last. Does that mean that your real income has increased? Explain carefully.

4. For the economy as a whole, how does income compare to expenditures? Explain.

5. Define gross domestic product.

6. What does purchasing-power parity imply about the real exchange rate? Explain what this means.

7.Suppose that there is an excess supply of economics professors. Should universities necessarily reduce salaries? What does standard economic theory suggest? What does efficiency-wage theory suggest?

8. What is the theory of efficiency wages? Provide four reasons that employers might pay efficiency wages.

Answer 1