1. The immigration of low-skill workers generates net benefits for ________ workers because they benefit from lower________ without bearing the cost associated with lower ________.
2. Living Wage and Labor Income. Consider a university that has sweatshirts bearing its logo produced overseas by a contractor who initially pays a wage of $8 per sweatshirt and has other costs of $12 per sweatshirt, resulting in a price of $20 per sweatshirt. At this price, the university sells 100 sweatshirts per week. Suppose a student group succeeds in getting the contractor to increase the wage to $10 per shirt and the other costs of production don t change.
a. The price per sweatshirt will increase from ________ to ________, an increase of ________ percent.
b. Suppose the price elasticity of demand for the university s sweatshirts is 3.0. At the higher price, a total of ________ sweatshirts will be purchased and the total spending on sweatshirt labor (total labor income) will change from $________ to $ ________.
c. Suppose consumers are willing to pay a higher price for sweatshirts made by workers receiving a higher wage. How would this change the numbers in part (b)? Provide an example in which the higher wage actually increases the total spending on sweatshirt labor.
3. Wage and Price Effects of Immigration. In the initial equilibrium in the market for farm workers, the wage is $10 per hour. The elasticity of supply of farm workers is 2.0, and the elasticity of demand for farm workers is 1.0. Suppose that immigration increases the supply of farm workers by 12 percent: The supply curve shifts to the right by 12 percent.
a. Use the price-change formula discussed in an earlier chapter on elasticity to compute the change in the equilibrium wage.
b. Suppose that farm workers are responsible for one fourth of the production cost of food. What are the implications of immigration for the cost of producing food and its price?
4. Payroll Tax. You are an economic consultant to a city that just imposed a payroll tax of $1 per hour of work. This payroll tax is paid by workers through a payroll deduction: For each hour of work, the employer deducts $1 and sends the money to the city government. The initial wage (before the tax) is $10, and total employment is 20,000 hours per day. Use a graph to show the effect of the tax on the equilibrium wage and employment.
5. Higher Teacher Salaries. Advocates of higher salaries for teachers point out that most teachers have college degrees and that teaching children is an important job. a. Why aren’t teachers salaries higher, given the importance of the job and the education required?
b. Suppose a new law establishes a minimum teacher salary that is 20 percent higher than the prevailing salary. How would you expect this law to affect the average quality of teachers and the taxes paid by the typical household?