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Chapter 12: Problem 2

Suppose that dehydrated meat is an inferior good. Discuss the effect on the equilibrium wage rate and level of employment in the dehydrated meat industry of an increase in national income.

Short Answer

Expert verified
With an increase in national income, the demand for the inferior good, dehydrated meat, decreases. This leads to a decrease in production in the dehydrated meat industry, which results in lower demand for labour, affecting the employment levels. Moreover, in a competitive labour market, the decrease in labour demand can also lead to a decrease in the equilibrium wage rate. The specific impact can vary depending on other market and regulatory conditions.

Step by step solution

01

Understand behaviour of consumer demand for an inferior good

Inferior goods are those goods whose demand decreases when the income of consumers increases. Consumers typically opt for better goods when their purchasing power increases, leading to a decrease in demand for inferior goods.
02

Identify the relation between consumer demand and production level

The production level of a industry depends on the demand for its product. When the demand for a product falls, the production level also goes down. In this scenario, with the increase in national income, the demand for dehydrated meat (considered an inferior good) will decrease, leading to a decrease in production level.
03

Discuss the effect on equilibrium wage rate and level of employment

When the production level in an industry decreases, the industry needs fewer workers, which can lead to layoffs or reduction in hiring, decreasing the level of employment. In addition, the wage rate may also get affected. If the labour market is competitive, the decrease in demand for labour, due to decreased production, could lead to a decrease in the equilibrium wage rate. The effects can vary based on other market conditions and labour market regulations.

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Most popular questions from this chapter

Fifteen years ago, college professors frequently hired undergraduates as research assistants to gather basic information in the library. Today, most professors can get the information themselves using the Internet in less time than it would take to explain what is needed to a research assistant. a. In the labor market for undergraduate research assistants, has the Internet been a substitutable or complementary technological change? b. All else equal, what impact has the development of the Internet likely had on the wage and employment level of undergraduate research assistants? c. Many college professors find that graduate student research assistants are more productive than before because they can use the Internet. All clse equal, has the Internet been a substitutable or complementary technological change for graduate student research assistants? What effect would this have on their equilibrium wage and employment level?

Many people think that immigration into the United States, because it causes competition for jobs, will lower the wage rates of U.S. workers. Yet, even though the United States admits hundreds of thousands of immigrants each year, the average U.S. wage has continued to grow. Can you explain why? Are there any groups of workers within the economy for whom the fear of lower wages is justified? Explain.

Some advocates of the minimum wage argue that any decrease in the employment of the unskilled will be slight. They assert that an increase in the minimum wage will actually increase the total amount paid to unskilled workers (i.e., wage \(\times\) number of unskilled workers employed). Discuss what assumptions they are making about the wage elasticity of labor demand.

Each of the following observations, ceteris paribus, implies something about a particular labor market. For each one, (1) identify the relevant labor market; (2) state whether you expect the wage rate in that market to be higher than otherwise, or lower than otherwise; and (3) identify which conceptual explanation for wage differences (among those discussed in the chapter) you are applying to reach your conclusion. a. Elevator repairers have a higher accident rate than most other jobs. b. People who work in New York City have to pay higher rent than other people. c. People like to work in New York City because there is a lot to do there. d. It takes rare diligence, motivation, and practice to become a concert pianist. e. Los Angeles has passed legislation requiring that fortune tellers become certified by the city. f. Office cleaning services don't like to risk hiring ex convicts, because employers believe they are more likely to steal equipment than other employees.

Suppose that in the market for U.S. meat packers, two things happen simultancously: (1) Due to growth in less-developed countries, the demand for U.S. meat exports rises; and (2) Due to other job opportunities, fewer people find meat-packing an attractive job. a. Which curve or curves in the labor market for meat packers would be affected by these changes? b. If there were no other changes, could you predict the impact of these events on the equilibrium wage of meatpackers? On their equilibrium employment level? Explain.
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