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e).(10 points) Given the change in conditions and tight labor markets, you decide give each worker a raise so that the new wage is $110 (this is along with the increase in productivity) . Now calculate the number of workers that you will hire and the associated profit in REAL terms. Please give me the marginal REAL profit of each worker hired and then add them up and that is the total profit in real terms. Hint, if you break even on the last worker hired then you still hire them.
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f) (10 points) Are workers better or worse off and why? Are firms better or worse off and why. What has happened to personal income tax revenue and why?
Explanation / Answer
e.
Productiveness in development is usually extensively outlined as output per labor hour. Seeing that labor constitutes a huge a part of the construction price and the variety of labor hours in performing a undertaking in building is more inclined to the impact of management than are substances or capital, this productivity measure is frequently referred to as labor productivity. Nevertheless, it's main to note that labor productiveness is a measure of the overall effectiveness of an operating method in making use of labor, equipment and capital to convert labor efforts into priceless output, and isn't a measure of the capabilities of labor on my own. For example, with the aid of investing in a section of latest apparatus to participate in precise duties in building, output could also be accelerated for the same quantity of labor hours, as a result leading to greater labor productiveness.
Building output is also expressed in phrases of realistic models or consistent dollars. In the former case, labor productiveness is related to items of product per labor hour, such as cubic yards of concrete placed per hour or miles of freeway paved per hour. Within the latter case, labor productivity is recognized with worth of construction (in constant dollars) per labor hour. The worth of construction on this regard is just not measured by way of the benefit of developed facilities, but by means of building price. Labor productivity measured on this manner requires gigantic care in interpretation. For instance, wage rates in construction have been declining in the U.S. For the period of the interval 1970 to 1990, and when you consider that wages are an most important aspect in building expenditures, the worth of construction put in situation per hour of labor will decline hence, suggesting curb productivity.
Productiveness at the Job web site
Contractors and owners are by and large involved with the labor undertaking at job websites. For this rationale, it's easy to precise labor productiveness as realistic units per labor hour for every type of building assignment. Nonetheless, even for such precise functions, distinct stages of measure is also used. For example, cubic yards of concrete placed per hour is a lower stage of measure than miles of highway paved per hour. Scale back-stage measures are extra useful for monitoring man or woman routine, while bigger-level measures is also extra effortless for establishing industry-huge requirements of performance.
Even as every contractor or proprietor is free to make use of its own system to measure labor productiveness at a website online, it is a excellent follow to established a system which can be utilized to track productivity developments over time and in different areas. Giant efforts are required to accumulate know-how locally or nationally over a quantity of years to produce such results. The productivity indices compiled from statistical data will have to comprise parameters such as the performance of most important crafts, effects of project measurement, style and place, and different predominant venture influences.
With a purpose to develop enterprise-large necessities of efficiency, there ought to be a common contract on the measures to be valuable for compiling data. Then, the job website online productiveness information amassed by using more than a few contractors and homeowners can also be correlated and analyzed to advance precise measures for each and every of the primary phase of the construction enterprise. Consequently, a contractor or proprietor can evaluate its performance with that of the industry usual.
Productiveness in the building enterprise
since of the diversity of the construction enterprise, a single index for the complete industry is neither meaningful nor secure. Productivity indices is also developed for main segments of the construction enterprise nationwide if secure statistical data will also be obtained for separate industrial segments. For this common sort of productiveness measure, it is extra effortless to specific labor productiveness as consistent greenbacks per labor hours considering the fact that greenback values are more effortlessly aggregated from a huge amount of knowledge accumulated from one-of-a-kind sources. Using constant greenbacks makes it possible for meaningful approximations of the changes from one year to one other when cost deflators are applied to present bucks to obtain the corresponding values in consistent dollars. However, on account that most development cost deflators are obtained from a mixture of fee indices for material and labor inputs, they mirror only the trade of rate stages and do not capture any savings coming up from extended labor productivity. Such deflators are inclined to overstate raises in development expenditures over an extended interval of time, and therefore understate the physical quantity or value of development work in years subsequent to the base year for the indices.
F.
Economic activity reflects a balance between what people, businesses, and governments want to buy and what they want to sell. In the short run, demand factors loom large. In the long run, though, supply plays the primary role in determining economic potential. Our productive capacity depends on the size and skills of the workforce; the amount and quality of machines, buildings, vehicles, computers, and other physical capital that workers use; and the stock of knowledge and ideas.
Incentives
By influencing incentives, taxes can affect each of these factors. Reducing marginal tax rates on wages and salaries, for example, can induce people to work more. Expanding the earned income tax credit can bring more low-skilled workers into the labor force. Lower marginal tax rates on the returns to assets (such as interest, dividends, and capital gains) can encourage saving. Reducing marginal tax rates on business income can cause some companies to invest domestically rather than abroad. Tax breaks for research can encourage the creation of new ideas that spill over to help the broader economy. And so on.
Note, however, that tax reductions can also have negative supply effects. If a cut increases workers’ after-tax income, some may choose to work less and take more leisure. This “income effect” pushes against the “substitution effect,” in which lower tax rates at the margin increase the financial reward of working.
Tax provisions can also distort how investment capital is deployed. Our current tax system, for example, favors housing over other types of investment. That differential likely induces overinvestment in housing and reduces economic output and social welfare.
Budget effects
Tax cuts can also slow long-run economic growth by increasing budget deficits. When the economy is operating near potential, government borrowing is financed by diverting some capital that would have gone into private investment or by borrowing from foreign investors. Government borrowing thus either crowds out private investment, reducing future productive capacity relative to what it could have been, or reduces how much of the future income from that investment goes to US residents. Either way, deficits can reduce future well-being.
The long-run effects of tax policies thus depend not only on their incentive effects but on their budgetary effects. If Congress reduces marginal tax rates on individual incomes, for example, the long-run effects could be either positive or negative depending on whether the resulting impacts on saving and investment outweigh the potential drag from increased deficits.
Putting it together
That leaves open questions on how large these effects are, and how to model them for the purpose of analyzing policy changes. The Congressional Budget Office and the Joint Committee on Taxation each use multiple models that differ in assumptions about how forward-looking people are, how the United States connects to the global economy, how government borrowing affects private investment, and how businesses and individuals respond to tax changes. Models used in other government agencies, in think tanks, and in academia vary even more. The one area of consensus is that the most pro-growth policies are those that improve incentives to work, save, invest, and innovate without driving up long-run deficits.
The Tax Policy Center has partnered with the Wharton School of the University of Pennsylvania to analyze the long-run economic effects of tax proposals. The Penn-Wharton Budget Model is an overlapping-generations model in which simulated households make work and saving decisions to maximize their well-being subject to given government policies and economic conditions.
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