Microeconomics Markets Seek Equilibrium And The Demand For ✓ Solved

Microeconomics Markets seek equilibrium, and the demand for go

Analyze the impact of an increase in the minimum wage from the current level to $15 per hour. How would the following be affected?

• a. employment of people previously earning less than $15 per hour
• b. the unemployment rate of teenagers
• c. the availability of on-the-job training for low-skilled workers
• d. the demand for high-skilled workers who are good substitutes for low-skilled workers

Review the mechanics of price floors and price ceilings. Why does a price floor lead to surpluses? Why does a price ceiling lead to shortages? Review consumer and producer surplus. A price floor will lead to a transfer of consumer surplus to producer surplus; a price ceiling will lead to a transfer of producer surplus to consumer surplus; both price regulations lead to deadweight losses, which is a loss of surplus to society. Why?

2. Politicians have a strong incentive to follow a strategy that will enhance their chances of getting elected and re-elected. Political competition more or less forces them to focus on how their actions influence their support among voters and political contributors. What is market failure, and what kinds of things can lead to market failure? What is government failure? Can government failure lead to market failure? Review concepts like shortsightedness and rent seeking. What are the effects of government intervention in markets with some of the price regulations like price floors and price ceilings we discussed in chapter 4?

3. Recent research confirms that the demand for cigarettes is not only price inelastic, but it also indicates smokers with incomes in the lower half of all incomes respond to a given price increase by reducing their purchases by amounts that are more than four times as large as the purchase reductions made by smokers in the upper half of all incomes. How can the income and substitution effects of a price change help explain this? Review price elasticity of demand and supply. Price elasticity describes the sensitivity between quantity demanded/supplied and price when a change in price occurs. A relatively lower change in quantity versus a change in price means the product is more price inelastic; a higher relative change in quantity versus a price change indicates more price elastic. Review the substitution effect and income effect dynamics.

4. To maximize profit, a price taker will expand its output as long as the sale of additional units adds more to revenues (marginal revenues) than to costs (marginal costs). Therefore, the profit-maximizing price taker will produce the output level at which marginal revenue (and price) equals marginal cost. In a price-taker market, if a business produces efficiently (i.e., that is, where marginal revenues = marginal costs), the firm will be able to make at least a normal profit. True or false? Explain. All firms produce where MR=MC. Price takers produce and price where P=ATC=MC=MR. That is the "normal profit" level. Profits above that level are considered "economic profits." Review economic profits, normal profits, explicit costs, and implicit costs.

5. A profit-maximizing price searcher will expand output as long as marginal revenue either exceeds or is equal to marginal cost, lowering its price or raising its price until the midpoint of their demand curve and highest total revenues are achieved. Why are oligopolies able to earn both short-run economic profits and long-run economic profits, while price-taking firms like perfect competitors can only earn short-run economic profits? Review the characteristics of perfect competition and imperfect competition (monopolistic competition, oligopoly, and monopoly). Barriers to entry don't exist for perfect competition, but barriers to entry exist for imperfect competition. What are the implications of barriers to entry to the firm and competition? Review consumer surplus and producer surplus; what happens to consumer surplus is price is above equilibrium or in this case above normal profits?

6. Profit-maximizing firms will hire additional units of a resource up to the point at which the marginal revenue product (MRP) of the resource equals its price. With multiple inputs, firms will expand their use of each until the marginal product divided by the price (MP/P) is equal across all inputs. What is the link between marginal revenue product and wages? Due to there being discrepancies between the productivity and resource offerings (i.e., education, skills, experience) in labor markets, is it justified for one employee with a higher marginal revenue product to earn a higher wage than an employee with a lower marginal revenue product? Does this notion of marginal revenue product and wages conflict with minimum wage laws? Review the mechanics of demand and supply. How does marginality work in economics?

7. Imports increase the domestic supply and lead to lower prices for consumers. Exports reduce the domestic supply and push price upward. The net effect of international trade is an expansion in total output and higher income levels for both trading partners (law of comparative advantage). "Imports destroy jobs; exports create them. The average American is hurt by imports and helped by exports." Do you agree or disagree with this statement? Explain and support. Review absolute and comparative advantages. Personal private property protection allows for greater entrepreneurial ventures and thus an expanding economy and job growth; can import tariffs and quotas reduce the benefits of trade? Review the mechanics of import tariffs and quotas and world price.

Paper For Above Instructions

The economic principle of equilibrium is foundational in microeconomic theory, emphasizing how the demand for goods and services interacts with supply to determine market prices. At this equilibrium point, the quantity demanded by consumers matches the quantity supplied by producers. However, disruptions such as changes in government policies or economic shifts can cause a market to deviate from this equilibrium, resulting in surpluses or shortages. One significant government intervention that impacts this dynamic is the minimum wage law. Analyzing the impact of raising the minimum wage to $15 per hour reveals complex interactions within the labor market.

When the minimum wage is increased to $15, individuals who were previously earning less than this amount may initially benefit from higher wages. However, the overall employment effect is nuanced. Employers facing increased labor costs may reduce hours or cut jobs to maintain profitability, hence impacting the employment of low-wage workers negatively (Neumark & Wascher, 2007). For teenagers, who are typically on the lower end of the wage spectrum, the unemployment rate may rise as employers may prefer to hire more experienced workers or automate tasks rather than pay the higher wage (Gottfried, 2018). This leads to a situation where entry-level positions become scarce, limiting job opportunities for young workers and disrupting their transition into the labor market.

The availability of on-the-job training for low-skilled workers is another consideration. As employers may seek to reduce costs in light of higher wages, they might cut back on training programs (Kahn, 2010). This diminishes the prospects for low-skilled workers to gain necessary experience and skills, perpetuating a cycle of low wage employment without upward mobility. Conversely, the demand for high-skilled workers may increase as firms invest in employees who can deliver greater productivity to offset the higher wage costs (Hamermesh, 2018). Thus, the minimum wage increase could unintentionally exacerbate skill disparities within the labor market.

Turning to market regulation, price floors—such as minimum wage laws—are designed to ensure minimum earnings for workers. However, they can lead to surpluses in the labor market. When wages are set above equilibrium levels, the supply of labor increases (more people seek jobs at higher wages), while demand decreases (employers hire fewer workers). The result is an oversupply of labor, increasing unemployment among low-skilled workers (Figlio & Wehr, 2015). Conversely, price ceilings, such as rent control, can lead to shortages by lowering the incentive for suppliers to provide housing, which in turn diminishes available housing stock (Glaeser & Luttmer, 2003). Both regulatory interventions result in deadweight losses, as consumer and producer surpluses are altered, diminishing overall societal welfare (Mankiw, 2014).

Market failure is another critical concept to address. It occurs when the allocation of goods and services by a free market is not efficient, leading to a loss of economic value. Factors contributing to market failure include externalities, monopolistic practices, and the provision of public goods (Stiglitz, 1989). Government failure can compound these issues; an ineffective intervention can lead to outcomes worse than the initial market failure, such as increased inefficiency and inequity (Tullock, 1965). The interaction between government actions and market outcomes highlights the complexity of economic systems.

In terms of consumer behavior, the recent research indicates that the demand for cigarettes is price inelastic, meaning consumers do not significantly reduce their consumption in the face of price increases. Smokers in lower-income brackets tend to reduce their consumption more dramatically than those in higher income levels due to the income and substitution effects. When the price rises, low-income smokers are forced to choose between cigarettes and other essential expenditures, leading to a more substantial decrease in demand compared to high-income smokers (Chaloupka & Pacula, 1999).

Firms operating in a competitive market will expand production to maximize profit where marginal costs equal marginal revenue (Pindyck & Rubinfeld, 2013). For price takers, efficient production occurs at the point where MR=MC. In contrast, price searchers (like oligopolies) have leeway to adjust prices and potentially earn long-run economic profits due to barriers to entry that protect them from new competitors (Tirole, 1988). These dynamics illustrate how different market structures impact firm behavior and profitability.

The influence of international trade on domestic markets must also be acknowledged. Many argue that imports destroy jobs, while exports create them; however, this perspective is overly simplistic. Trade can increase overall domestic supply, thereby leading to lower consumer prices and broader access to goods (Krugman & Obstfeld, 2015). The assertion that the average American is harmed by imports ignores the broader context of the law of comparative advantage, where specialization can increase total output and elevate income levels, benefiting both trading partners (Samuelson, 2004).

In conclusion, analyzing the impact of policies such as minimum wage increases reveals intricate dynamics between labor demand, supply, and market regulation. Equilibrium in markets is disturbed by government interventions, creating both intended and unintended consequences. Understanding these relationships is vital for policymakers as they navigate the balance between promoting fair wages and ensuring employment opportunities.

References

• Chaloupka, F. J., & Pacula, R. L. (1999). The effect of price on cigarette smoking. Health Economics, 8(1), 15-26.
• Figlio, D. N., & Wehr, W. (2015). The effects of minimum wage increases on employment: A review of the literature. Labour Economics, 36, 112-123.
• Glaeser, E. L., & Luttmer, E. F. P. (2003). The misallocation of housing under rent control. The American Economic Review, 93(4), 1027-1046.
• Gottfried, H. (2018). The Inequities of Workers: Minimum Wage, Unionization & Youth Unemployment. Economic Inquiry, 56(3), 1451-1473.
• Hamermesh, D. S. (2018). The demand for labor. In The Handbook of Labor Economics (Vol. 4, pp. 453-532). Elsevier.
• Mankiw, N. G. (2014). Principles of Economics. Cengage Learning.
• Kahn, L. M. (2010). The impact of the minimum wage on employment: A review of the evidence from the 1990s. Industrial Relations Research Association, 23(1), 115-134.
• Krugman, P., & Obstfeld, M. (2015). International Economics: Theory and Policy. Pearson.
• Neumark, D., & Wascher, W. (2007). Minimum wages and employment. Foundations and Trends in Microeconomics, 3(1-2), 1-182.
• Pindyck, R. S., & Rubinfeld, D. L. (2013). Microeconomics (8th ed.). Pearson.
• Samuelson, P. A. (2004). Economics. McGraw-Hill.
• Tirole, J. (1988). The Theory of Industrial Organization. MIT Press.
• Tullock, G. (1965). The politics of bureaucracy. In The Politics of Bureaucracy (pp. 89-108). Public Affairs Press.
• Stiglitz, J. E. (1989). The economic role of the state. The Economic Journal, 99(397), 238-251.