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Suppose a city’s new mayor decides to remove a heavy pollution tax on firms in the...

Suppose a city’s new mayor decides to remove a heavy pollution tax on firms in the area. The goal of this policy is to create good jobs for city residents.

  1. 6.1 Using the urban labor market diagram, what happens to the labor demand curve? Explain. Assume that all firms pollute.

  2. 6.2 What happens to the labor supply curve? Explain.

  3. 6.3 Without any knowledge of supply and demand elasticities, what can you say about what will happen to equilibrium wages under the new policy?

  4. 6.4 What can you say about changes in the equilibrium number of workers?

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