Study Guide for Microeconomics
Study Guide for Microeconomics
9th Edition
ISBN: 9780134741123
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
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Chapter 18, Problem 1E

(a)

To determine

The externality created by the firms.

(b)

To determine

The externality created by the firms.

(c)

To determine

Efficient level of air quality.

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In the week-4 materials, when deriving labour supply, we assumed that the substitution effect dominated the income effect. What impact would there be on labour supply if this was not the case? Briefly investigate how such a change could theoretically affect the imposition of a minimum wage above the market clearing wage. (Your answer is likely to benefit from diagrammatic support.)
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