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Chapter 17: Problem 16

In most universities, economics professors receive higher salaries than English professors. Suppose that the government requires that from now on, all universities must pay economics professors the same salaries as English professors. Use demand and supply graphs to analyze the effect of this requirement.

Short Answer

Expert verified
The wage equalization leads to a decrease in supply of Economics professors and an increase in demand for English professors. This results in new lower equilibrium for economics professors and higher for English professors.

Step by step solution

01

Understanding the problem

In the current situation, salaries of economics professors are higher than those of English professors. This marks a difference in the demand and supply equilibrium between economics and English professors' market. Also, the government requires that economics professors' and English professors' salaries be the same.
02

Drawing the initial demand-supply graph

Create two separate demand-supply graphs for economics professors and English professors. Since economics professors earn more, the demand for them is higher. This means that the demand curve for economics professors will be further to the right compared to the English professors' graph. Likewise, the supply of economics professors will be less compared to English professors since more salary attracts less quantity of professors, i.e., the supply curve for economics professors will be to the left of the English professors' curve.
03

Analyzing the effect of wage equalization

When government implements wage equalization, the salaries of Economics professors decrease. This results in a decrease in the supply of Economics professors (supply curve shifts to the left) as the profession becomes less attractive. On the other hand, demand for English professors increases as Universities can hire more at a lower cost causing the demand curve to shift right.
04

Demonstrating new equilibrium

In the end, we get a new equilibrium on both graphs. For Economics professors, the equilibrium has shifted down and towards the left showing lower wages and less supply. For English professors, the equilibrium shifts up and to the right showing higher wages and more demand.

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Most popular questions from this chapter

Sean Astin, who played the hobbit Sam in The Lord of the Rings movies, wrote the following about an earlier film he had appeared in: "Now I was in a movie I didn't respect, making obscene amounts of money (five times what a teacher makes, and teachers do infinitely more important work)." Are salaries determined by the importance of the work being done? If not, what are salaries determined by?

What are the three most important variables that cause the market supply curve of labor to shift?

In equilibrium, what determines the price of capital? What determines the price of natural resources? What is an economic rent?

Sam Goldwyn, a movie producer during Hollywood's Golden Age in the \(1930 \mathrm{~s}\) and \(1940 \mathrm{~s}\), once remarked about one of his stars: "We're overpaying him, but he's worth it." a. In what sense did Goldwyn mean that he was overpaying this star? b. If he was overpaying the star, why would the star have still been worth it?

Define economic discrimination. Is the fact that one group in the population has higher earnings than other groups evidence of economic discrimination? Briefly explain.
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