In the labor market, we can also talk about responsiveness or elasticity with respect to wages
Question:
A: For each of the following statements, indicate whether you think the statement is true or false (and why):
(a) The wage elasticity of labor supply must be positive if leisure and consumption are normal goods.
(b) In end-of-chapter exercise 9.5, we indicated that labor supply curves are often “back ward bending”. In such cases, the wage elasticity of labor supply is positive at low wages and negative at high wages.
(c) The wage elasticity of labor demand is always negative.
(d) In absolute value, the wage elasticity of labor demand is at least as large in the long run as it is in the short run.
(e) (The compensated labor supply curve, which we will cover more explicitly in Chapter 19, is the labor supply curve that would emerge if we always insured you reached the same indifference curve regardless of the wage rate.) The wage elasticity of compensated labor supply must always be negative.
(f) The (long run) rental rate (of capital) elasticity of labor demand (which is a cross-price elasticity) is always positive.
(g) The output price elasticity of labor demand is positive and increases from the short to the long run.
B. Suppose first that tastes over consumption and leisure are Cobb-Douglas.
(a) Derive the functional form of the labor supply function.
(b)What is the wage elasticity of labor supply in this case? Explain how this relates to the implicit elasticity of substitution in Cobb-Douglas tastes.
(c) Next, suppose that the decreasing returns to scale production process takes labor and capital as inputs and is also Cobb-Douglas. Derive the long run wage elasticity of labor demand.1
(d) Derive the rental rate elasticity of labor demand. Is it positive or negative?
(e) Derive the long run output price elasticity of labor demand. Is it positive or negative?
(f) In the short run, capital is fixed. Can you derive the short run wage elasticity of labor demand and relate it to the to long run elasticity you calculated in part (c)?
(g) Can you derive the short run output price elasticity of labor demand and compare it to the long run elasticity you calculated in part (e)?
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
A a This is false As wages change there are offsetting substitution and wealth effects relative to leisure when leisure is a normal good This implies that the impact of a change in wage on labor suppl...View the full answer
Answered By
Tobias sifuna
I am an individual who possesses a unique set of skills and qualities that make me well-suited for content and academic writing. I have a strong writing ability, allowing me to communicate ideas and arguments in a clear, concise, and effective manner. My writing is backed by extensive research skills, enabling me to gather information from credible sources to support my arguments. I also have critical thinking skills, which allow me to analyze information, draw informed conclusions, and present my arguments in a logical and convincing manner. Additionally, I have an eye for detail and the ability to carefully proofread my work, ensuring that it is free of errors and that all sources are properly cited. Time management skills are another key strength that allow me to meet deadlines and prioritize tasks effectively. Communication skills, including the ability to collaborate with others, including editors, peer reviewers, and subject matter experts, are also important qualities that I have. I am also adaptable, capable of writing on a variety of topics and adjusting my writing style and tone to meet the needs of different audiences and projects. Lastly, I am driven by a passion for writing, which continually drives me to improve my skills and produce high-quality work.
1+ Reviews
10+ Question Solved
Related Book For 
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Question Posted:
