1. The city of Greenlandia decides to impose a price floor on labor in the form of a minimum wage. This price floor is set above the market-clearing or equilibrium wage. How would this policy affect employment -assuming that Greenlandia has a competitive labor market?

a. Employment would increase as firms would illegally hire workers below the original competitive wage.

b. Employment would be unchanged as workers are non-responsive to low wages.

c. Employment would decrease as some workers who are willing to work at the lower competitive wage would no longer be able to find work.

d. Employment would increase as previously unemployed workers would be more encouraged to find a job.

e. Employment would increase because a higher minimum wage would create more jobs for low-skilled workers.

1. A minimum wage represents a "price ceiling" on Labor (L) (e.g., the highest legal price that consumers pay).

True

False

1. When the government imposes a payroll tax, the resulting dead weight loss (or "excess burden") represents the gains forgone because the tax forces employers to reduce employment below its efficient level; the "excess burden" (or dead weight loss) arises because the payroll tax prevents some workers who were willing to work being hired by employers who were willing to hire them.

True

False

1. A profit-maximizing firm originally hires the following input (L,K) combinations to produce Q =10,0000 (units of output): 20K, 5L (Point A). A reduction in the cost of capital (r) causes the firm to change its output combination to:10K, 25L (Point B) - along the same Isoquant (Q=10,0000). The Marginal Rate of Technical Substitution (MRTS) - as the firm moves from Point A to Point B along the same Isoquant is2.0, indicating that the firm is willing to "give up" 2 units of Capital (K) in order to hire (or use) 1 unit of Labor (L) to produce the same level of output (Q=10,000).