How does the elasticity of demand for labor affect the deadweight loss from an increase in the minimum wage? Why?
What will be an ideal response?
The more elastic the demand for labor, the greater the deadweight loss from increasing the minimum wage. Essentially, the more elastic the demand for labor, the larger the decrease in the quantity of labor demanded when the minimum wage rate rises. As a result, the larger the decrease in employment and hence the greater is the deadweight loss.
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Based on your understanding of your roommate's preferences, you predict that he will select the spaghetti for his lunch at the cafeteria, but instead he chooses the gyros. How do you describe this event in terms of economic theory?
A) Your roommate is irrational. B) Your roommate does not know what is in his own best interests. C) You roommate does not know his own preferences as well as you do. D) You constructed a model that made a prediction, and the prediction was refuted.
The term opportunity cost suggests that
a. in any exchange situation where one person gains, someone else must lose b. not all individuals make the most of life's opportunities c. executives do not always recognize opportunities for profit as quickly as they should d. the only factor that is important in decision making is cost e. because goods are scarce, in order to get some good you must give up some other good in return