EBK ECONOMICS: PRINCIPLES AND POLICY
EBK ECONOMICS: PRINCIPLES AND POLICY
13th Edition
ISBN: 8220100605932
Author: Blinder
Publisher: Cengage Learning US
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Chapter 35, Problem 1DQ
To determine

The reason for nevertheless to be likely better off.

Expert Solution & Answer
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Explanation of Solution

Since the person who does not have a pair of shoe exchanges his half dozen of shirts to attain 3 pairs of shoes and the person who does not have a shirt is willing to exchange his 3 pairs of shoes to get 6 shirts, the exchange rate between shoes and shirts become 1:2. Therefore, the value of 1 pair of shoes is equivalent to 2 shirts. Thus, there is no financial gain through this exchange.

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M” method  Given the following model, solve by the method of “M”. (see image)
As indicated in the attached image, U.S. earnings for high- and low-skill workers as measured by educational attainment began diverging in the 1980s. The remaining questions in this problem set use the model for the labor market developed in class to walk through potential explanations for this trend.  1. Assume that there are just two types of workers, low- and high-skill. As a result, there are two labor markets: supply and demand for low-skill workers and supply and demand for high-skill workers. Using two carefully drawn labor-market figures, show that an increase in the demand for high skill workers can explain an increase in the relative wage of high-skill workers.  2. Using the same assumptions as in the previous question, use two carefully drawn labor-market figures to show that an increase in the supply of low-skill workers can explain an increase in the relative wage of high-skill workers.
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