Explain whether the following statements are true, false, or uncertain. Use grap

Question

Explain whether the following statements are true, false, or uncertain. Use graphs

and/or equations to support your arguments.

bIf Senator Cruz buys one pint of milk regardless of its price and $1 worth of cookies

every day, then his demand curve for milk and his demand curve for cookies are

both price inelastic.

(c) A minimum wage leads to relatively less deadweight loss in labor markets where

labor demand is relatively more inelastic.

(d) Governor Palin notices that, on average, wages are much higher in Alaska than

Arizona. Thus, she concludes, everyone in Arizona could raise their incomes by

moving to Alaska.

(e) Raising the minimum wage always increases the total payments from firms to

workers. (Total payments from firms to workers equal the wage times the quantity

of labor exchanged in the market = w L.)

Explanation / Answer

bFALSE. If Senator Cruz buys one pint of milk regardless of its price then any change in price brings no change in quantity demanded so its demand for milk is perfectly inelastic.However, he always buy $1 worth of cookies regardless of its quantity and so his demand for cookies is perfectly elastic.

(c) TRUE. Deadweight loss is higher in case of elastic demand because a rise in wage creates more unemployment. Hence a minimum wage leads to relatively less deadweight loss in labor markets where labor demand is relatively inelastic.

(d) FALSE. Wage differences are attributed to skills and productivity of the worker. Hence not everyone who migrates would like to face an increase in the wage rate.

(e) FALSE. Raising the minimum wage sometimes increases the total payments from firms to workers, when demand or supply is inelastic. When any of them is elastic, unemployment is higher so that total payment falls.

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